Significant changes to the UK's Prospectus Rules

Overview of the proposals

• On 26 July 2024, the FCA released a consultation paper outlining its detailed proposals for changes to the UK's prospectus rules
• The rules will affect companies listed on the London Stock Exchange's Main Market and, in some cases, AIM and the AQSE markets
  
• Significantly, the threshold at which a prospectus is required for a secondary issuance of shares will be increased substantially
  
• The aim is to reduce the costs of listing on UK markets, make capital raising easier on UK listed markets and remove barriers to retail participation
  
• The final rules are expected to be settled by the end of H1 2025, and would then come into force in due course

Significant prospectus threshold increase

• Currently, a further issue of shares on the Main Market – whether for a fundraising or for any other reason – requires publication of a prospectus if the shares issued over the past 12 months exceed 20% of issued share capital. This is a major cost and timing impediment to capital raising and M&A
  
• The FCA proposes to increase this threshold to 75%
  
• This is a significant increase, which will make it quicker and cheaper for Main Market listed companies to raise funds and issue shares in major transactions. It addresses one of the major criticisms of the UK's capital markets rules
  
• This proposal is at the upper end of our expectations, and is significantly higher than the proposed EU threshold increase to 40%
  
• This change, together with the Secondary Listing category introduced under the new Listing Rules, will also make London's markets much more attractive to companies seeking a dual listing, as the additional layer of UK legislation will be less onerous

Prospectus regime extended to AIM/AQSE

• AIM and AQSE Admission Documents would be 'rebadged' as Prospectuses for all initial listings and reverse takeovers. This means that they will be subject to the same statutory responsibility and compensation provisions as Prospectuses, including withdrawal rights, but content requirements will be unchanged, and will be set by the market operators
  
• This will enable retail investors to participate in an AIM or AQSE IPO fundraising.
  
• The aim is to reduce the barriers to investor participation, particularly with respect to public offers – this may encourage issuers to include retail investors in offers by default, thereby leading to wider participation in the ownership of public companies
  
• 'Fast track' dual listings from overseas exchanges will be exempt
  
• Companies will need to understand the ramifications of the increased investor protections afforded by these changes

Prospectus Content Requirements

The FCA is consulting on certain changes to the content requirements for prospectuses. The proposals include:

• Revising and simplifying the Prospectus Summary
  
• Financial disclosure should largely remain unchanged, although companies may be permitted to disclose assumptions made in preparing a working capital statement
  
• Enhanced disclosure requirements where a company has identified climate-related risks or opportunities as material
  
• Potentially, enhanced climate disclosure requirements for mining and oil & gas companies
• Protections from liability in relation to forward-looking statements

Dual listings and AIM step-ups?

• Disappointingly, the consultation paper proposes no simplified 'fast-track' process for companies with an existing overseas listing who are looking to dual list, or AIM-listed companies looking to move up to the Main Market
  
• However, there is a reference to a "potential 'overseas offers' regime [TBC]" which is "subject to further work" by the Treasury. Previous Treasury papers have suggested that the FCA may be able to allow companies on designated overseas markets to make offers of securities to the UK public in reliance on overseas offer documents
  
• Whilst this doesn't imply a simplified dual listing process, we consider that such a process would be consistent with the new Listing Rules Secondary Listing category. Dual listings, and step-ups from AIM, could benefit from a fast-track process requiring a simplified prospectus. We will be making representations to the FCA as part of our response to their consultation

What's next?

• Consultation on the proposals ends on 18 October 2024
  
• FCA aims to finalise the rule changes by the end of H1 2025
  
• There would be a further period prior to new rules coming into force – we anticipate that this would be late Q3 2025
  
• The FCA has also issued a separate consultation paper on the proposed new regime for 'public offer platforms', that will enable crowd-funders and similar platforms to facilitate public offers to retail consumers