EU Prospectus Regulation - December 2024 Amendments

Key Points

With effect from 4 December 2024 a number of important amendments to the EU Prospectus Regulation will take effect due to an amending Regulation which is part of the EU's "Listing Act" package. In the context of non-equity securities, the most important changes will:

• Enable the incorporation by reference into a base prospectus of annual or interim financial information published after the date of the base prospectus without the need for a prospectus supplement.
• Prohibit risk factors that are generic or only serve as disclaimers.
• Restore the temporary amendments concerning prospectus supplements and their effects which applied through most of 2021 and 2022 in response to the Covid pandemic, including the extension of the period during which withdrawal rights may be exercised from two to three working days.
• Clarify that a supplement to a base prospectus may not be used to introduce to the programme a new type of security for which the necessary information has not already been included in that base prospectus.
• Extend exemptions for follow-on or "fungible" offerings and for shares resulting from the conversion or exchange of other securities.

The amending Regulation also introduces a number of other changes to the EU Prospectus Regulation which will take effect from 5 June 2026.

The Listing Act

On 14 November 2024, as part of a Capital Markets Union (CMU) package on listing and corporate insolvency known as the "Listing Act", Regulation (EU) 2024/2809, intended to make EU capital markets more attractive for companies and to facilitate access to capital for small and medium-sized enterprises, was published in the Official Journal. This Regulation, which among other things makes detailed changes to the EU Prospectus Regulation, will enter into force on 4 December 2024 and the focus of this note is on those reamendments to the EU Prospectus Regulation as it applies to non-equity securities which apply from 4 December 2024. However, many provisions of this amending Regulation will not apply until 2026, and these are described briefly at the end of this note.

Information incorporated by reference and prospectus supplements

The EU Prospectus Regulation currently permits information to be incorporated by reference in a prospectus provided that it appears in one or more documents which are listed in Article 19. This list includes annual and interim financial information. However, to be capable of being incorporated by reference the information must have been published electronically before or at the same time as publication of the prospectus and in a language meeting the relevant language requirements. With effect from 4 December 2024, issuers of base prospectuses will now be permitted to incorporate by reference annual or interim financial information published after the date of publication of the base prospectus.

Furthermore, the EU Prospectus Regulation will go on expressly to provide a feature that is already implied, namely that an issuer will not be required to publish a supplement to a base prospectus simply because annual or interim financial information is published after the date of the base prospectus. However it will continue to be the case that a supplement will be required if the new annual or interim financial information (or the process of compiling it) reveals any significant new information.

The list of documents in Article 19 is also amended with effect from 4 December 2024 to exclude documents which have been approved by, or filed with, a competent authority in accordance with the Prospectus Directive (which was repealed in 2019). As a result, the common practice of incorporating by reference terms and conditions from earlier base prospectuses into a new base prospectus to facilitate fungible issues will no longer extend to terms and conditions from base prospectuses approved under the Prospectus Directive regime.

Risk factors

Once again the amending Regulation seeks to address the Sisyphean goal of making risk factors brief and punchy. It adds an express prohibition on risk factors that are generic, that only serve as disclaimers or that do not give a sufficiently clear picture of the specific risk factors that investors are to be aware of. However it seems unlikely that any of the changes made by the amending Regulation will have much impact in practice. For example, currently the issuer is required to assess the materiality of the risk factors based on the probability of their occurrence and the expected magnitude of their negative impact and then present these risk factors in a limited number of categories with, in each category the most material risk factors mentioned first according to this assessment. The amending Regulation changes this to an obligation simply to present the most material risk factors in each category "in a manner that is consistent with [this] assessment".

Prospectus supplements and withdrawal rights

In 2021, the Commission's Capital Markets Recovery Package response to the Covid pandemic introduced some temporary amendments concerning prospectus supplements and their effects. These temporary measures expired on 31 December 2022 but the amending Regulation reinstates and extends them with effect from 4 December 2024. In particular, the extension of the period during which withdrawal rights may be exercised from two to three working days is made permanent.

Also these temporary amendments helpfully clarified that, when a supplement is published, a financial intermediary's obligation to contact investors is confined to those investors which agreed to purchase through that financial intermediary. Furthermore, financial intermediaries were required to inform investors about withdrawal rights by the end of the first working day after the date of publication of the supplement. The amending Regulation reinstates these amendments on a permanent basis and provides that the financial intermediary's obligation is to contact investors by "electronic means" about their withdrawal rights. Financial intermediaries will also be required to warn investors which do not agree to be contacted by electronic means to monitor the issuer’s or the financial intermediary’s website until the closing of the offer period or delivery of the securities to check whether a supplement is published.

Separately, a new provision is added with effect from 4 December 2024 to make clear that a supplement to a base prospectus may not be used to introduce to the programme a new type of security for which the necessary information has not already been included in that base prospectus (unless to do so is necessary to comply with capital requirements under EU law or national law transposing EU law). ESMA is tasked with developing guidelines by 5 June 2026 to specify the circumstances in which a supplement is to be considered as introducing a new type of security that is not already described in a base prospectus.

Exemptions for follow-on offerings

The amending Regulation introduces a new exemption from the obligation to publish a prospectus for an offer of securities which are to be admitted to trading on a regulated market or an SME growth market and are fungible with securities already admitted to trading on the same market, provided that they represent less than 30% of the number of securities already admitted to trading on the same market (calculated over a 12-month period). The current similar exemption for a follow-on admission of securities to trading on a regulated market is extended from 20% to 30%, as is the current exemption for shares resulting from the conversion or exchange of other securities.

Goodbye to printed prospectuses?

Currently, a prospectus must be delivered to any potential investor, upon request and free of charge, "on a durable medium" and printed on paper if the investor requests. The amending Regulation abolishes the requirement for a printed prospectus and replaces the current obligation with an obligation to deliver a copy of the prospectus in electronic format upon request and free of charge.

Universal registration documents

The EU Prospectus Regulation allows an issuer which has received approval for a universal registration document for two consecutive years to be designated a frequent issuer and thereafter be allowed to file without prior approval all subsequent universal registration documents and any amendments. The amending Regulation reduces the period necessary to obtain the status of frequent issuer to one year.

Summary of amendments which will not apply until 2026

The amending Regulation also includes amendments which will not apply until 5 June 2026. These include:

• Standardised format: requirements for a prospectus to be a document of a standardised format with information presented in a standardised sequence, in accordance with the delegated acts to be made by the Commission during the next 18 months;
• Layout of prospectuses and summaries: empowering the Commission to adopt implementing technical standards which specify the template and layout of prospectuses and summaries, including the font size and style requirements, and ESMA to develop guidelines on comprehensibility and on the use of plain language in prospectuses (for more information, see this Ashurst briefing on ESMA's October consultation paper proposing amendments to the format and content of EU prospectuses);
• Page limit for equity prospectuses: a 300-page limit for a prospectus that relates to shares (note that this 300-page limit will not apply to a prospectus that relates to non-equity securities);
• ESG disclosure: empowering the Commission to adopt delegated acts specifying the ESG-related information to be included in any prospectus relating to non-equity securities that are advertised as taking into account ESG factors or pursuing ESG objectives;
• Permitted language: amending the rules governing the language(s) in which a prospectus must be drawn up to provide issuers with more flexibility to draw up a prospectus in English only (as the language customary in the sphere of international finance), irrespective of whether the offer or admission to trading is domestic or cross-border; and
• Small offers threshold: replacing the current thresholds for small offers of securities to the public with a single harmonised threshold of EUR12,000,000 below which offers will be exempt from the obligation to publish a prospectus.

The amending Regulation inserts a new transitional provision into the EU Prospectus Regulation to the effect that any prospectus approved before 5 June 2026 will continue to be governed until the end of its validity by the version of the EU Prospectus Regulation in force on the day of its approval.