So far, it appears that the Prospectus Regulation would not bring significant relief for large companies and companies already listed on regulated markets, although we welcome the creation of a Universal Registration Document, a Frequent Issuer status and a specific regime for secondary issuances. The case is not yet closed and implementing measures will play a key role in achieving significant alleviations. The Commission and ESMA will be empowered to deliver several « level 2 measures » and, in order to meet expectations, a holistic view to alleviate constraints on financing should be adopted: information already public should not be required and the prospectus should focus on the securities and the financial transaction. Implementing measures should also ensure that the existing flexibility remains. This approach will not lower investor protection since the key elements to strengthen investor protection in the near future do not lie with the prospectus but with greater convergence in the practices of Competent Authorities and enhanced investor literacy.

 

Adopt a holistic view to alleviate disclosure requirements
  • The Commission will be empowered to adopt delegated acts to supplement the Prospectus Regulation on various topics. These delegated acts could bring significant relief for companies, building on the solid existing reporting and disclosure framework (market abuse, transparency, IFRS, non-financial reporting…).
  • In order to elaborate the new prospectus schedules, and in particular the schedule for secondary issuances, all information made public by issuers should be taken into account and not required – without prejudice to the information specifically required by the Regulation (eg. risk factors, working capital statement…): the schedules should focus on the securities offered and/or admitted to trading and the impact of the transaction on the issuer and the shareholders.
  • As regards the schedule for debt securities, the Commission has established an expert group in order to analyse and reflect on the functioning of corporate bond markets. This expert group will put forward recommendations in September 2017 that could contribute to build the relevant prospectus schedules.
  • Information to be published in order to benefit from the exemption of prospectus for securities offered and/or admitted to trading in connection with a takeover by means of an exchange offer, a merger or a division should be significantly lighter and limited to key information regarding the transaction and its impact, taking into account the disclosures required either by company law or by other pieces of EU legislation.
Keep it simple and flexible
  • Implementing measures should not restrain the current flexibility of the prospectus regime: the creation of the Universal Registration Document (URD) is a progress but the Regulation should not prevent issuers to include additional information; the Prospectus Regulation should allow issuers to choose the order of information in a prospectus (e.g. to describe the activities before the risk factors).
  • To ensure that the new URD regime is proportionate and attractive to issuers, the Commission could profit from the experience of France where half of the companies listed on Euronext Paris file a registration document on a voluntary basis.
  • As long as comprehensibility is not impaired, incorporation by reference of documents in a prospectus should be supported and developped.
  • The Commission is empowered to adopt delegated acts to specify the criteria for the assessment by the issuer of the specificity and materiality of risk factors and for the presentation of risk factors across categories. Large companies already have in place processes to identify and manage risks. They also apply internal control policies compliant with either domestic or international frameworks (e.g. COSO). Setting the main general criteria could help smaller companies but any detailed provisions would be difficult to elaborate and could conflict with issuers risk management policies. Regarding the presentation of risk factors across categories, the Commission could draw from the practice of French companies and the guidance of the French Authority (AMF).
  • To allow all essential information to fit in the summary, when defining the key financial information regarding the issuer ESMA should keep it short and simple: covering all type of issuers and business sectors could be very complex ; ESMA should only define the type of key financial information required and the principles they should comply with (comparability, consistency…).
Financial literacy is key to strengthen investor protection…not warnings
  • Technological evolution breaks up the linearity of information: investors do not read prospectuses from the first to the last page and the flow of information will even be more fragmented in the future with multiple formats. Requiring additional disclosures will not improve the protection of retail investors. It is therefore key to enhance investors financial and economic literacy in order to ensure that they can access and analyse all available information, identify what is missing and ask (themselves) the right questions. Investor literacy is not addressed by the CMU action plan. It should be a priority for all competent authorities and the Commission because it could be one of the most efficient drivers of confidence in financial markets.
  • Also, the focus for competent authorities should not be on the review of occasional prospectuses but on the continuous monitoring of price sensitive information, periodic disclosures and advertisements related to public offerings of securities. Considering the increasing flow of information published by companies and technological developments, engaging with issuers only on the occasion of a specific financial transaction could not be the most efficient way to ensure investor protection. Ongoing dialogue between issuers and regulators will strengthen investor protection and allow a faster approval of prospectuses.
  • Supervisory convergence is essential to avoid arbitrage, harmonise practices and ensure an efficient approval process. ESMA’s focus should be to harmonise practices among National Competent Authorities through peer review and training.