As part of the European Commission’s “Capital Markets Union” action plan to unlock capital and create a single market for capital across the member states, the European Commission is undertaking a review of the current Prospectus regime and has launched a consultation process seeking feedback from interested parties.

The current Prospectus Directive has been in force in Ireland since July 2005 and sets out rules which aim to harmonise requirements for the drawing up, approval and distribution of a prospectus when securities are offered to the public or admitted to trading on a regulated market within a Member State of the EU.

The objectives of the review are:

• To reform the current regime to make it easier for companies (in particular SMEs) to raise capital throughout the EU and to lower the associated costs, while maintaining effective levels of investor protection
• To update the Prospectus Directive to reflect market and regulatory developments

The consultation document identifies a number of shortcomings within the current regime from the point of view of both investors and issuers preparing prospectuses:

• The drawing up and approval of prospectuses is often perceived as overly expensive, complex and time-consuming, especially for SMEs.
• The application of the Directive is not harmonised across Member States.
• Prospectuses have become overly lengthy and complex documents, defeating the aim of investor protection.

Three central areas will be examined as part of the review:

• The circumstances in which a prospectus will be required – e.g. should exemptions be introduced for secondary offers? Should a prospectus be required for admission to trading on an MTF (multi-lateral trading facility)?
• Simplifying the information to be included in prospectuses – e.g. should the requirement for a summary be deleted? Should there be a tailor made regime for SME growth markets (with simplified content requirements)?
• Streamlining the approval process – e.g. should the “base prospectus facility” be extended to equity issuers (currently only available for non-equity securities)?

The Commission is seeking feedback on the consultation document by 13 May 2015. Replies are sought from all types of individuals and organisations, but particularly from entities which have prepared a prospectus in the past (or have considered doing so), specialists in the area, relevant national authorities and organisations and investors who have used prospectuses for their investment decisions.

The Commission will decide how to progress the amendment of the Directive in the next number of months. The responses to the consultation will provide important guidance to the Commission when preparing, if considered appropriate, a formal Commission proposal.

Contributed by Ita O’Sullivan, Ian Hutchinson.

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