European Commission: New prospectus regulation delegated regulations
On June 21, 2019 the European Commission published two Commission Delegated Regulations, in the Official Journal which supplement the new Prospectus Regulation. The Delegated Regulations will also repeal certain delegated regulations which relate to the existing Prospectus Directive.
Regulatory technical standards
Commission Delegated Regulation (EU) 2019/979 relates to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal. Delegated Regulation (EU) 2019/979 is in the same form as the final draft text published by the Commission on March 14, 2019 and will apply from July 21, 2019.
Format, content, scrutiny and approval of prospectuses
Commission Delegated Regulation (EU) 2019/980 addresses the format, content, scrutiny and approval of prospectuses. Delegated Regulation (EU) 2019/980 is in the same form as the final draft text published by the Commission on March 14, 2019 and will apply from July 21, 2019.
(Commission Delegated Regulation (EU) 2019/979 – Regulatory technical standards)
(Commission Delegated Regulation (EU) 2019/980 – Format, content, scrutiny and approval of prospectuses)
ESMA: Survey on undue short-term pressure from the financial sector on corporations
On June 24, 2019 the European Securities and Markets Authority (ESMA) published a survey which aims to gather evidence on potential short-term pressures on corporations stemming from the financial sector. Considering the impact of short-termism forms part of ESMA’s work on sustainable finance and relates to the European Commission’s Action Plan on “Financing Sustainable Growth”.
ESMA considers short-termism to be the focus on short time horizons by both corporate managers and financial markets, prioritising near-term shareholder interests over long-term growth of the firm. With the survey, ESMA is seeking to collect information on market practices and the views of financial market participants. Responses to the survey will contribute to ESMA’s analysis of potential sources of undue short-termism on corporations with an aim of identifying areas in which existing rules may contribute to mitigating undue short-termism and areas where the rules may exacerbate short-term pressures.
The consultation seeks feedback from stakeholders on areas, including
- Investment strategy and investment horizon - ESMA asks for information on the key features and the focus of stakeholders’ investment strategy as well as on the time horizon(s) they use in their business activities. Questions in this area aim to collect comprehensive information on the strategic approach taken by various market players, depending on their role and objectives, in order to get a broad understanding of how they prioritise short- and long-term values in their investment activities. Responses are intended to provide evidence on how consistent the long-term value drivers of the investment strategy are with the investment timeframe and the global approach for investment decision-making, and which specific considerations in investment strategies may induce short-termism.
- Disclosure on environmental, social and governance (ESG) factors and the contribution of such disclosure to long-term investment strategies – ESMA asks market participants for information on their experience with disclosures under the Non-Financial Reporting Directive 2014/95/EU including whether, how and to what extent public disclosure on ESG factors can enable investors to integrate in their decision-making process considerations on a company's ability to create long-term sustainable value for its shareholders and for society at large. ESMA also raise the question of whether any changes relating to requirements on non-financial information are needed at EU level to enable investors to take long-term investment decisions.
- The role of fair value in better investment decision-making – In this area of the survey, ESMA asks questions on whether and how fair value may impact the capacity of financial reporting to provide relevant and reliable information on equity instruments held for long-term investment purposes. Responses in this section will help ESMA to assess how the measurement and disclosure of fair value may impact the selection of a short- or long-term horizon, as well as to assess whether the transparency benefits arising from the use of fair value for financial instruments outweigh the intrinsic potential volatility of fair value.
- Institutional investors’ engagement - ESMA asks institutional investors to share their experiences and views on whether and how they monitor the long-term value maximisation of their investee companies by further engaging with them and voicing their potential concerns. The questions in this section indirectly relate to the revised Shareholder Rights Directive that established specific requirements in order to encourage shareholder engagement in EU listed companies.
- Remuneration of fund managers and corporate executives - In this section, ESMA examines whether remuneration policy and practices of fund managers can be a driver of short-termism and includes questions on the remuneration packages assigned to executives of issuers.
The survey also provides respondents with the opportunity to raise any additional considerations on the topic of undue short-term pressure on corporations from the financial sector which they have not been able to reflect elsewhere in the survey.
Responses to the survey should be received by July 29, 2019 and ESMA is expected to deliver a report to the European Commission based on its findings by December 2019.
(ESMA: Consultation on short-term pressure on corporations, 24.06.19)
(ESMA: Consultation on short-term pressure on corporations explanatory memorandum, 24.06.19)
(ESMA: Consultation on short-term pressure on corporations press release, 24.06.19)
New Prospectus Regulation: Amendments to the Financial Services and Markets Act 2000
On June 25, 2019 the Financial Services and Markets Act 2000 (Prospectus) Regulations 2019 (the Regulations) were published. The Regulations make amendments to the Financial Services and Markets Act 2000 (FSMA) (and to certain related legislation) to ensure that such legislation is compatible with the new Prospectus Regulation. The Regulations come into force on July 21, 2019.
In summary, the Regulations
(Financial Services and Markets Act 2000 (Prospectus) Regulations 2019)
- Designate the Financial Conduct Authority (the FCA) as the competent authority for the purposes of the new Prospectus Regulation.
- Amend FSMA to introduce provisions that enable the FCA, under specified conditions, to suspend scrutiny of prospectuses; to refuse approval of a prospectus for persons applying for approval who have repeatedly and severely infringed requirements of the new Prospectus Regulation; to suspend or restrict an offer to the public; to suspend or restrict admission to trading on a regulated market; to suspend or prohibit trading on a trading facility; as well as provisions that require certain employers to have internal procedures for employees to report infringements of the new Prospectus Regulation.
- Make consequential amendments to certain related legislation (namely the Financial Services Act 2012, the Data Protection Act 2018, the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and Financial Services and Markets Act 2000 (Qualifying EU Provisions) Order 2013.
- Provide transitional provisions for prospectuses/supplementary prospectuses approved prior to the new Prospectus Regulation coming into force, such that the Regulation's amendments do not apply to these prospectuses. These transitional provisions cease to apply on the earlier of July 21, 2020 or when the prospectus's validity expires.
(Financial Services and Markets Act 2000 (Prospectus) Regulations 2019, explanatory memorandum)