Explanatory Memorandum to COM(2020)281 - Amendment of regulation 2017/1129 as regards the EU Recovery prospectus and targeted adjustments for financial intermediaries to help the recovery from the COVID-19 pandemic - Main contents
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| dossier | COM(2020)281 - Amendment of regulation 2017/1129 as regards the EU Recovery prospectus and targeted adjustments for financial ... |
|---|---|
| source | COM(2020)281  |
| date | 24-07-2020 |
1. CONTEXTOFTHE PROPOSAL
1.1. Reasons for and objectives of the proposal
EU Member States have been severely affected by the economic crisis resulting from the COVID-19 pandemic. This calls for a need to react quickly in order to provide support to capital markets participants. In the Communication of the Commission of 13 March 2020, entitled ‘Coordinated economic response to the COVID-19 outbreak’1, the Commission highlighted the importance of ensuring the liquidity of the EU financial sector and countering a threatening recession through actions at all levels. Furthermore, on 27 May 2020, in its Communication entitled ‘Europe’s moment: Repair and Prepare for the Next Generation’2, the Commission presented key instruments supporting the recovery plan for Europe, including measures that aim at kick-starting the economy and helping private investment. This Communication also stressed that liquidity and access to finance will be a continued challenge for companies.
The objective of the targeted changes to the prospectus regime as set out in the Prospectus Regulation3 is to enable companies to access new funding in as short time period to help with the economic recovery from the COVID-19 pandemic. In particular, it aims to help companies raise equity so that they can restore sustainable debt-to-equity ratios and become more resilient.
A prospectus is a legally required document presenting information about a company and the securities that such company offers to the public or seeks to admit to trading on a regulated market. This information should be the basis on which investors can decide whether to invest in securities issued by that company. The cost of drawing up a prospectus might act as a deterrent for issuers in financial distress seeking to raise new funds, in particular equity. Due to the situation resulting from the COVID-19 pandemic, it is crucial to ensure that for already listed issuers the prospectus does not act as a barrier to raise capital on public markets.
This proposal therefore aims at simplifying the procedure for issuers to quickly raise capital due to the economic urgency resulting from the COVID-19 pandemic. These amendments to the Prospectus Regulation relate to the creation of a new type of short-form prospectus (the “EU Recovery prospectus”) as well as targeted amendments to release pressure on financial intermediaries (notification of supplements and non-equity issuances by credit institutions).
1.1.1. The EU Recovery
prospectus
The objective of the EU Recovery prospectus is to provide listed issuers with simplified disclosure rules that are tailored to their specific needs in a post-crisis environment while
Communication from the Commission to the European Parliament, the European Council, the Council,
economic response to the COVID-19 Outbreak, COM(2020) 112 final of 13.03.2020.
Communication from the Commission to the European Parliament, the European Council, the Council,
the European economic and social committee and the committee of the regions Europe's moment:
Repair and Prepare for the Next Generation, COM52020) 456 final of 27.5.2020.
prospectus to be published when securities are offered to the public or admitted to trading on a
regulated market, and repealing Directive 2003/71/EC (OJ L 168, 30.6.2017, p. 12).
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maintaining the prospectus as a relevant tool for informing potential investors. In the current post-crisis situation, it is crucial to reduce regulatory hurdles that might affect recapitalisation of companies and allow issuers to tap into public markets at an early stage in the recovery.
The EU Recovery prospectus aims to focus on essential information and would only be available for secondary issuances of shares. Provided that issuers have shares already admitted to trading on a regulated market or an SME Growth market continuously for at least the last 18 months, the alleviated disclosure is expected to reduce the cost of drawing up a prospectus and to make the document easier to understand. Furthermore, the EU Recovery prospectus should also make more efficient the scrutiny by national competent authorities. To that extent, the proposed EU Recovery prospectus regime intends to shorten prospectus approval to 5 working days to allow issuers to swiftly seize opportunities to raise capital. This new type of prospectus would also benefit from the EU single passport of approved prospectuses for cross-border offers and admissions to trading.
The EU Recovery prospectus aims to be (i) easy to produce for companies that want to raise equity on capital markets, (ii) easy to understand for investors who wants to finance them and (iii) easy to scrutinise and approve for national competent authorities.
The EU Recovery prospectus aims at helping recapitalization during the recovery phase. It is therefore conceived as a temporary regime that expires 18 months after the date of application of this Regulation. As part of the Prospectus Regulation review, it should also be assessed whether the EU Recovery prospectus meets its objectives. To help in this assessment, the proposal would require that the ESMA’s centralised storage mechanism that collects prospectus data from national competent authorities would also collect data on the EU Recovery prospectus. This marginal adjustment of ESMA’s centralised storage mechanism is not expected to require extra resources from ESMA staff. This should also not incur significant additional costs.
1.1.2. Amendments to release pressure on financial intermediaries
Supplements
An issuer is required to publish a supplement to the prospectus for any significant new factors, material mistakes or material inaccuracies relating to the information included in a prospectus which may affect the assessment of the securities and which arises or is noted between the time when the prospectus is approved and the closing of the offer period or the time when trading on a regulated market begins, whichever occurs later. The publication of a supplement triggers a withdrawal right for the investors to be exercised within two working days from the publication of the supplement. As part of their duty to protect investors, financial intermediaries must contact investors to inform them that a supplement was publishedon the day where the supplement is published. Such a deadline, as well as the broad qualification of “investors”, have created difficulties for financial intermediaries.
To deal with these difficulties and free up resources for financial intermediaries, the proposal clarifies the obligations on financial intermediaries as regards supplements. Financial intermediaries should only inform those investors that have purchased and subscribed securities through them of the possibility of the publication of a supplement, provided that the purchase or subscription was agreed upon between the time when the prospectus had been approved and the closing of the offer period or the time when trading on a regulated market had begun, whichever occurs later. Following the publication of a supplement, the financial
intermediary must only contact those investors benefiting from a withdrawal right. The proposal also extends the deadline for financial intermediaries to contact investors to 1 working day from the publication of the supplement. To maintain a high level of investor protection, the period during which a withdrawal right could be exercised by investors is extended from two working days to three working days from the publication of the supplement.
As the targeted amendment on supplements would fix these difficulties and free up resources for financial intermediaries while maintaining a high level of investor protection, such amendments would not be limited in time.
Non-equity
securities issued by credit institutions
An offer of non-equity securities issued in a continuous or repeated manner by a credit institution is, under certain conditions, not subject to the obligation of publishing a prospectus if the total consideration is less than EUR 75 million per credit institution over a period of 12 months. Credit institutions have been active in the recovery to support companies that needed financing and are expected to be a fundamental pillar of the recovery. In order to help credit institutions by making it easier for them to have more financing and bring them a breathing space to support their clients in the real economy, the Commission proposes a targeted increase of the threshold from EUR 75 million to EUR 150 million. It aims at supporting the financing of credit institutions in the recovery phase by increasing the prospectus exemption threshold for certain type of offers of securities. As this measure is directly linked to the recovery phase of the Covid-19 pandemic, it should be available for a limited period of time of 18 months.
1.2. Consistency with existing policy provisions in
the policy area
While laying down extraordinary measures to soften the impact COVID-19 pandemic, this proposal remains in line with the overarching objectives of the Prospectus Regulation to foster fund raisings through capital markets, ensure investor protection, and drive supervisory convergence throughout the EU. This proposal is also complementary to the reporting obligations laid down in the Transparency Directive4, for regulated markets, the Commission Delegated Regulation (EU) 2017/5655, for SME Growth markets, and the Market Abuse Regulation6 for both trading venues.
Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (OJ L 390, 31.12.2004, p. 38).
Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive (OJ L 87, 31.3.2017, p.
1).
Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (OJ L 173, 12.6.2014, p.
1).
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1.3. Consistency with other Union
policies
This legislative proposal on amendments to the Prospectus Regulation is part of a set of measures to facilitate the economic recovery post-COVID-19 pandemic which also includes a legislative proposal amending MiFID II7 and a legislative proposal amending the framework on securitisation, including the Securitisation Regulation8 and the Capital Requirements Regulation9.
This legislative proposal also aims to complement the objectives of the Capital Markets Union to diversify market-based sources of financing for companies. By making it easier for companies listed in the EU to issue shares, this initiative would contribute to facilitating capital-raising by companies. In this regard, this proposal would be in line with the recommendation of the High Level Forum on the Capital Markets Union10 published on 10 June 2020 that highlighted the need to alleviate listing rules, also referring to the Prospectus Regulation. As part of the measures to soften the impact of the COVID-19 pandemic on the real economy and financial markets, this initiative also aims at alleviating regulatory costs for listed issuers on both regulated markets and SME Growth markets. In particular, the flexibility given to SME Growth markets issuers capitalises further on the objectives of the recently adopted Regulation (EU) 2019/2115 of the European Parliament and of the Council11, which lays down measures aiming to promote the use of such trading venue. Furthermore, this initiative must be consistent with any additional proposals that the Commission aims to develop in different policy areas to soften the impact of COVID-19 pandemic on capital markets, including the key instruments supporting the recovery presented in the Commission Communication entitled ‘Europe’s moment: Repair and Prepare for the Next Generation’ of 27 May 2020.
2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY
2.1. Legal basis
The legal basis of the Prospectus Regulation is Article 114 of the Treaty on the Functioning of the European Union (TFEU) which confers to the European institutions the competence to lay down appropriate provisions that have as their objective the establishment and functioning of the single market. Those Regulations can only be amended, including by reducing their scope on a temporary basis, by the Union legislator, in this case on the basis of Article 114 of the Treaty.
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financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173,
12.6.2014, p. 349).
Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying
down a general framework for securitisation and creating a specific framework for simple, transparent
and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU
and Regulations (EC) No 1060/2009 and (EU) No 648/2012.
prudential requirements for credit institutions and investment firms and amending Regulation (EU) No
https://ec.europa.eu/info/files/200610-cmu-high-level-forum-final-report_en
amending Directive 2014/65/EU and Regulations (EU) No 596/2014 and (EU) 2017/1129 as regards the
promotion of the use of SME growth markets (OJ L 320, 11.12.2019, p.
1).
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2.2. Subsidiarity
Under Article 4 of TFEU, EU action for completing the internal market has to be appraised in light of the subsidiarity principle set out in Article 5(3) of the Treaty on European Union. According to the principle of subsidiarity, action at EU level should be taken only when the objectives of the proposed action cannot be achieved sufficiently by Member States alone and thus mandate action on an EU level.
Disclosure requirements in case of offers of securities or admission to trading on a regulated market result from the application of the Prospectus Regulation. This European Regulation has direct binding legal force throughout all Member States. They leave almost no flexibility for Member States to adapt the rules to local conditions. The problems arising from those provisions can only be effectively addressed via legislative amendments at the European level12. The possible alternatives, i.e. non-legislative action at Union level could not sufficiently and effectively achieve the objective set, as they could not amend the provisions of the Regulation.
A harmonised EU prospectus is an essential tool to integrate capital markets throughout the Union. Once a competent national authority approves a prospectus, the issuer can ask for a passport to use this prospectus in another EU Member State. No further approvals or administrative procedures relating to the prospectus would be necessary in this 'host' Member State. This passport operates on the assumption that minimum content of the prospectus is harmonised at Union level by the applicable prospectus rules. As the passport is therefore European in nature, any improvements can only be tackled at EU level. The possible alternatives, such as action at Member State level, would create an obstacle to trade and could not sufficiently and effectively achieve the objectives to create the harmonised basis for the 'passporting' of prospectuses.
The proposed amendments to the Prospectus Regulation would give a clear signal throughout the Union that the prospectus regime can adapt in exceptional circumstances. Alleviating targeted burdens identified in the Prospectus Regulation as well as making the prospectus more accessible for issuers whose shares are already admitted to trading on a regulated market or on a SME growth market can be conducive to deepening the pan-European capital pools available to such issuers. This involves designing a distinct prospectus regime whose content and format is suitable for both issuers and investors under strict conditions. These objectives cannot be achieved by the Member States alone as it would lead to less level playing field for issuers and investors alike and create regulatory arbitrage and obstacles to cross-border trade. These objectives can be better achieved at the level of the Union.
2.3. Proportionality
This proposal only brings technical amendments to the Prospectus Regulation in order to swiftly address the economic repercussions of the COVID-19 pandemic. The proposed measures to lighten the prospectus requirements respect the principle of proportionality. They are adequate for reaching the objectives and do not go beyond what is necessary and are, for some of the measures, limited in time.
Vodafone case C-58/08: Where an act based on Article 95 EC has already removed any obstacle to trade in the area that it harmonises, the Community legislature cannot be denied the possibility of adapting that act to any change in circumstances or development of knowledge having regard to its task of safeguarding the general interests recognised by the Treaty
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Issuers
The proposal alleviates prospectus disclosure requirements for issuers in line with the principle of proportionality. Provided that their shares have already been admitted to trading on a regulated market or SME Growth market continuously for at least the last 18 months, issuers wishing to raise capital will benefit from alleviated disclosure rules in the EU Recovery prospectus. This alleviated disclosure regime would result in a reduction in compliance costs as the EU Recovery prospectus would be much shorter and therefore less expensive to produce. In addition, these issuers would benefit from faster prospectus approvals enabling them to seize funding opportunities more effectively. In order not to go beyond what is necessary, the EU Recovery prospectus will be limited in time and is therefore proposed as a temporary regime that expires 18 months after the date of application of this Regulation.
Investors
The proposed EU Recovery prospectus is also in line with the principle of proportionality with respect to potential investors. The EU Recovery prospectus would be more reader-friendly with its reduced number of pages and its focus on essential information while, at the same time, targeting its use to the specific situation where the issuer has a track record and therefore already information published in the market.
Financial
intermediaries
Financial intermediaries would benefit from targeted amendments that would clarify their supplement-related requirements and help them to overcome the difficulties they met to effectively reach investors when a supplement is published while maintaining a high level of investor protection. As the targeted amendments on supplements would fix difficulties, such amendments would not be limited in time.
Credit institutions, that have been active in the recovery to support companies, would also benefit from a targeted alleviation with the proposal to increase the prospectus exemption threshold from EUR 75 million to EUR 150 million for offers of non-equity securities issued in a continuous or repeated manner. As such measure aims at helping credit institutions which are going to be a fundamental pillar of the recovery phase, it would be limited in time to 18 months.
National competent authorities
National competent authorities should also benefit from the proposed simplifications of the EU Recovery prospectus: with less information to disclose and scrutinise in the EU Recovery prospectus, their workload would be reduced and the approval process would be easier.
2.4. Choice
of the instrument
The proposed legislative amendments aim in particular at lowering the administrative burden and compliance costs faced by issuers and resulting from the application of the Prospectus Regulation. To this end, the legislative measures will amend the current provisions of the Prospectus Regulation. The legal basis for the Prospectus Regulation is Article 114(1) TFEU. Any amending regulation has therefore the same legal basis.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER
Contents
- CONSULTATIONS
- The objective of the EU Recovery prospectus is to provide listed issuers with simplified disclosure rules that are tailored to their specific needs in a post-crisis environment while
- the European Central Bank, the European Investment Bank and the Eurogroup on Coordinated
- Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the
- Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in
- Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying
- Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on
- 648/2012
- Regulation (EU) 2019/2115 of the European Parliament and of the Council of 27 November 2019
- As the targeted amendments on supplements would fix difficulties and free up resources for financial intermediaries while maintaining a high level of investor protection, such
ANDIMPACTASSESSMENTS
3.1. Impact
assessment
Given the urgency of measures to be taken to help the recovery after the crisis on financial markets and on the real economy resulting from the COVID-19 pandemic, the impact assessment was replaced by a cost-benefit analysis included in the Staff Working Document supporting the Capital Markets Recovery Package.
The simplified disclosure regime of the EU Recovery prospectus aims to significantly reduce compliance costs for issuers and focuses on essential information for investors. It should also reduce the workload of national competent authorities as less information would have to be scrutinized. At the same time, the approval process would be faster. Financial intermediaries would also benefit from the targeted amendments on supplements and the increase of the exemption prospectus threshold for issuances of non-equity securities.
3.2. Fundamental
rights
The protection of personal data (Article 8), the freedom to conduct a business (Art. 16) and consumer protection (Art. 38) of the EU Charter of Fundamental Rights are to some extent relevant as regards the provisions laid down in this proposal. Limitations on these rights and freedoms are allowed under Article 52 of the EU Charter of Fundamental Rights. In the case of the prospectus-related legislation, the general interest objective which justifies certain limitations of fundamental rights is the objective of ensuring market integrity. As regards the protection of personal data, the disclosure of certain information in the prospectus is necessary to ensure that investors are able to conduct their due diligence.
4. BUDGETARYIMPLICATIONS
The initiative is not expected to have any impact on the EU budget.
5. OTHERELEMENTS
5.1. Implementation plans and monitoring, evaluation and reporting arrangements
A monitoring of the impact of the new Regulation will be carried out in cooperation with ESMA and national competent authorities on the basis of the annual reports on prospectuses approved in the Union which ESMA is empowered to produce every year. It would require that the ESMA centralised storage mechanism collecting prospectus data from national competent authorities would also collect data on the EU Recovery prospectus.
The EU Recovery prospectus will be assessed. In particular, key parameters to measure achievement of the stated objectives of the EU Recovery prospectus will be:
(a) the number of EU Recovery prospectuses approved and an analysis of the evolution of such number;
(b) the cost of preparing and having an EU Recovery prospectus approved compared to the current costs for a secondary issuance prospectus together with an indication of the overall financial savings achieved.
This list of indicators is non-exhaustive and can be expanded to accommodate the monitoring of additional impacts.
5.2. Detailed
explanation of the specific provisions of the proposal
The amendments to the Prospectus Regulation aim at creating the EU Recovery prospectus as a new type of prospectus as well as targeted amendments for financial intermediaries.
Article 1 of this proposal deals with amendments to the Prospectus Regulation.
Article 1(1) of this proposal deals with non-equity securities issued by credit institutions on a continuous or repeated manner (Article 1 i of the Prospectus Regulation).
An offer of non-equity securities issued in a continuous or repeated manner by a credit institution is, under certain conditions, not subject to the obligation of publishing a prospectus if the total consideration is less than EUR 75 million per credit institution calculated over a period of 12 months. In addition, the current regime provides that the securities must not be subordinated, convertible or exchangeable and must not give the right to subscribe for or acquire other types of securities and are not linked to derivative instruments. Credit institutions have been active in the recovery to support companies that needed financing and are expected to be a fundamental pillar of the recovery phase. In order to help credit institutions by making it easier for them to have more financing and bring them a breathing space to support their clients in the real economy, it is proposed a targeted increase of the threshold from EUR 75 million to EUR 150 million. With this targeted amendment, credit institutions would benefit from a narrowly defined alleviation that would help them to offers non-equity securities without publishing a prospectus in the recovery phase after the crisis resulting from the COVID-19 pandemic. As this measure is limited to the recovery phase, it would therefore be available for a limited time period of 18 months.
Articles 1(2) and 1(3) of this proposal deal with technical adjustments on the materiality test (Article 6 of the Prospectus Regulation) and summary (Article 7 of the Prospectus Regulation) in relation with the EU Recovery prospectus regime set out in Article 1 i of this proposal.
Article 1 i of this proposal creates a new regime for the EU Recovery prospectus (Article 14a of the Prospectus Regulation).
Scope of the EU Recovery
prospectus
According to Article 1 i of this proposal, the EU Recovery prospectus would be available only to issuers that have shares already admitted on a regulated market or an SME Growth Market for at least 18 months. Issuers should have disclosed the regulated information to the public pursuant to Directive 2004/109/EC, where applicable, Regulation (EU) No 594/2014 and, where applicable, information referred to in Commission Delegated Regulation (EU) 2017/565. The EU Recovery prospectus would not be suitable for initial public offerings where potential issuers have no track record on financial markets. To reduce the debt-to-equity ratio for companies highly indebted due to the COVID-19 pandemic, the short-form prospectus could be used for share issuances only.
Content and approval of the EU Recovery
prospectus
According to Article 1 i of this proposal, the EU Recovery prospectus focuses on essential information. As an exception to Article 6 of the Prospectus Regulation, key items have been identified as elements to be disclosed by issuers and are listed in the new Annex Va to the Prospectus Regulation. The EU Recovery prospectus would be shortened to a maximum of 30 pages. However, as a balancing measure, incorporation by reference of information already available in the market as defined in Article 19 of the Prospectus Regulation would be allowed and that information would not be taken into account in the above mentioned maximum size of 30 pages. A short summary of two pages would also be available.
A fast track approval procedure already exists in the Prospectus Regulation. Based on this, the EU Recovery prospectus would also benefit from such fast track approval of no more than 5 working days.
Articles 1(5), 1(6), and 1(10) of this proposal deal respectively with technical adjustment on the time period for the scrutiny and approval of the prospectus (Article 20 of the Prospectus Regulation), storage mechanism (Article 21of the Prospectus Regulation) and the list of items to be disclosed (new Annex Va of the Prospectus Regulation) in relation with the EU Recovery prospectus regime set out in Article 1 i of this proposal.
Under Articles 1(8) and 1(9) of this proposal, the EU Recovery prospectus regime should expire after an 18 months period of application (Article 47a of the Prospectus Regulation). The assessment of whether the EU Recovery Prospectus meets the objectives pursued by this Regulation should be part of the review of the Prospectus Regulation (Article 48 of the Prospectus Regulation).
Article 1(7) of this proposal deals with supplements (Article 23 of the Prospectus Regulation).
Under the current regime, issuers are required to publish a supplement to the prospectus for every significant new factor relating to the information included in a prospectus which may affect the assessment of the securities and which arises or is noted between the time when the prospectus is approved and the closing of the offer period or the time when trading on a regulated market begins, whichever occurs later. The publication of a supplement triggers a withdrawal right for investors to be exercised within two working days from the publication of the supplement. As part of their duty to protect investors, financial intermediaries must contact investors to inform them that a supplement was published on the day when the supplement is published. Such a deadline, as well as the broad qualification of “investors”, have created difficulties for financial intermediaries.
To deal with those difficulties and free up resources for financial intermediaries, the present proposal sets out targeted amendments. The first amendment concerns the scope. It clarifies that financial intermediaries must only contact and inform investors that subscribed and purchased securities through them between the time when the prospectus is approved and the closing of the offer period or the time when trading on a regulated market begins, whichever occurs later.
Secondly, the proposal extends the deadline for financial intermediaries to contact investors that subscribed and purchased securities through them and that benefit from a withdrawal right within 1 working day from the publication of the supplement. To maintain a high level of investor protection, the period during which a withdrawal right could be exercised by investors is extended from two working days to three working days from the publication of the supplement.
As the targeted amendments on supplements would fix difficulties and free up resources for financial intermediaries while maintaining a high level of investor protection, such
amendments would not be limited in time.
Article 2
of this proposal deals with its entry into force.