FCA: Investor protection measures for SPACs – Proposed changes to Listing Rules
On April 30, 2021, the Financial Conduct Authority (FCA) published Consultation Paper CP 21/10 proposing changes to aspects of the Listing Rules that apply to special purpose acquisition companies (SPACs). SPACs are companies formed to raise money from investors, which they then use to acquire another operating business. While SPACs are already permitted to list in the UK, the changes the FCA are proposing are aimed at encouraging a wider range of SPAC listings with stronger investor protection features.
Currently a SPAC’s listing is typically suspended at the point it identifies an acquisition target. Suspension seeks to preserve market integrity during a period when limited information on a prospective deal could result in disorderly trading in a SPAC’s shares. However, the FCA note that suspension results in investors being locked into a SPAC at the point a target is announced, potentially for many months prior to completion, which is undesirable for investors and issuers. The FCA are proposing that SPACs that comply with higher levels of investor protection should not be subject to this requirement.
The features the FCA are proposing include the following:
- Meeting a minimum size threshold based on the amount raised when a SPAC’s shares are initially listed (proposed at £200 million), and setting a time limit on a SPAC’s operating period requiring the SPAC to find and acquire a target within two years of its admission to listing, although this period could be extended by up to 12 months if the public shareholders (i.e. shareholders other than the founder shareholders, sponsor or any SPAC director) agree.
- Ensuring monies raised from public markets are ring-fenced (via an independent third party) so they are preserved to either fund an acquisition, or be returned to shareholders, less any amounts specifically agreed to be used for the SPAC’s running costs.
- Ensuring shareholder approval for any proposed acquisition, based on sufficient disclosure of key terms and a ‘fair and reasonable’ statement from the board of the SPAC reflecting advice from an appropriately qualified and independent adviser where any conflict of interest exists between SPAC directors and a target company.
- A ‘redemption’ option (set out in the initial prospectus) allowing investors to exit a SPAC before any acquisition is completed (this should specify a predetermined price at which shares will be redeemed, which could be a fixed amount or fixed pro rata share of the cash proceeds ring-fenced for investors, less pre-agreed amounts the SPAC retains for its running costs).
- Adequate disclosures given to investors at the appropriate stages in the SPAC’s lifecycle, from a SPAC’s initial listing to any final transaction that results in the SPAC completing a takeover of another business and establishing a new company
The consultation closes on May 28, 2021. The FCA intend to bring forward further policy proposals and discussion on the Listing Rules more broadly in due course. This will include a further consultation paper in the summer of 2021. Depending on the outcome of the consultation process, the FCA state that they intend to keep any final Handbook changes under review. They welcome views on, and will consider further, whether the changes proposed (which primarily take the form of guidance) should be codified as a more specific set of rules for SPACs in the future. If there is evidence to suggest that the proposed changes are not having the intended effect, and some larger SPACs are not complying with our rules and guidance, the FCA may also seek to introduce more stringent requirements as a matter of urgency.
For more information on this consultation, see our briefing on the subject.
(FCA, Investor protection measures for SPACs – Proposed changes to Listing Rules, CP21/10, 30.04.2021)
Parliament: National Security and Investment Act 2021 – Royal Assent
The National Security and Investment Bill (NS&I Bill) received Royal Assent on April 29, 2021, and the National Security and Investment Act 2021 has now been published.
The Act introduces a significant change in approach in terms of the requirement on companies to notify certain deals in 17 “sensitive” sectors under mandatory elements of the new regime, which are very broad and which are backed by the power to impose significant financial and criminal penalties for failure to comply. However, the final mandatory regime is narrower than it might otherwise have been – the lowest percentage threshold triggering a mandatory notification under the Act requires an acquisition of more than 25 per cent of votes or shares in a qualifying entity, whereas the NS&I Bill had proposed a lower threshold of 15 per cent.
The Act also includes a voluntary notification regime, capturing a broad range of transactions (including acquisitions of assets such as land and IP), which could be called-in for review if not voluntarily notified.
Although the NS&I Bill has received Royal Assent, the new regime will not come into force until towards the end of the year. However, transactions where a relevant “trigger event” occurs on or after November 12, 2020 could be called-in for a retrospective review once the new regime commences.
Further information on the Act will be provided in a briefing shortly. Our briefing on the NS&I Bill is here.
(National Security and Investment Act 2021)
(BEIS, National security bolstered as Bill to protect against malicious investment granted Royal Assent, 29.04.2021)
Parliament: Financial Services Act 2021 – Royal Assent
The Financial Services Bill 2019-21 received Royal Assent on April 29, 2021 and the Financial Services Act 2021 has now been published. As far as the corporate aspects of the new Act are concerned, one section relates to insider lists and transactions by persons discharging managerial responsibilities (PDMRs) and another concerns the sentence for criminal market abuse.
The relevant sections are as follows:
- Section 30 (Insider lists and managers' transactions) amends the UK version of the Market Abuse Regulation (UK MAR) to clarify who is required to maintain an insider list, establishing that issuers and any person acting on their behalf or on their account are all required to maintain such a list (rather than issuers or any person acting on their behalf or account). Section 30 also amends Article 19(3) of UK MAR to adjust the timetable within which issuers are required to disclose transactions by PDMRs and their closely associated persons (PCAs) to the public. Issuers must disclose transactions within two working days of receipt of notification of such transactions by their PDMRs and PCAs, instead of no later than three business days after the date of the transaction.
- Section 31 (Maximum sentences for insider dealing and financial services offences) increases the maximum sentence for criminal market abuse from seven to ten years.
Section 30 will come into force on June 29, 2021. Section 31 will come into force in due course as determined by HM Treasury.
(Financial Services Act 2021)
(HM Treasury, Milestone for UK financial services as Bill receives Royal Assent, 29.04.2021)
ESMA: Q&A on the Prospectus Regulation updated
On May 5, 2021 the European Securities and Markets Authority (ESMA) updated its Questions and Answers (Q&A) on the Prospectus Regulation with the addition of three new Q&A.
The new Q&As provide clarifications on the following aspects:
- The application of Article 4(1) of the Regulation on credit rating agencies (CRA Regulation) to any credit rating disclosure in a prospectus;
- How to determine home Member State in the context of global depository receipts over shares; and
- The publication of supplements to prospectuses when new audited annual financial information is published by a non-equity issuer.
(ESMA, Questions and Answers on the Prospectus Regulation, 05.05.2021)