The proposed new UK Prospectus regime – key forthcoming changes for housing association bond issuers

The publication of the FCA’s proposed new rules for admission to trading on regulated UK markets has been long-awaited and eagerly anticipated.  Back in 2021, in response to Lord Hill's independent listing review, the UK Government committed to reforming the UK prospectus regime, which is derived from pre-Brexit EU legislation, and to replacing it with a more agile, effective and attractive public offers and admission to trading regime (POATR).  The proposals, published on 26 July 2024 in CP24/12, dovetail with recent reform of the UK listing regime, which you can read about here.

The main aims of the reforms are to make it easier to raise capital on UK listed markets and to remove barriers to retail participation.  In recognition of the need for stability and confidence in UK markets, the FCA intends to maintain a large degree of consistency between the new and current regime.  However, they propose targeted changes that aim to reduce issuer costs, to widen access to markets and to improve the quality of information available to investors. 

One of the most significant proposed relaxations is that an FCA-approved prospectus will be required for admission of securities to a regulated market or a primary MTF only when the size of the issuance exceeds 75% of the number of securities previously in issue.  The current threshold is 20%.  A prospectus may be submitted for FCA approval on a voluntary basis below the new threshold.

There are a number of changes aimed at encouraging wider participation by retail investors, such as:

• the reduction from 6 days to 3 days of the time period between making the prospectus available to the public and the offer ending; and
• moving away from the requirement for an FCA-approved prospectus on a Primary MTF, perceived as a significant barrier due to the costs involved, where securities are available to retail investors as well as Qualified Investors (QIs).  Instead, all initial admissions by Primary MTF issuers will require an MTF admission prospectus, with the market operator taking responsibility for the detailed content and process requirements.  The market operator will also retain discretion on whether to require an MTF admission prospectus for any further issuances of securities already admitted to trading on a Primary MTF and for the content stipulations of supplementary prospectuses.  Operators of QI-only MTFs will continue to have discretion to set their own rules. 

The FCA intends to undertake a separate consultation in late Q4 2024 in relation to issuance of low denomination retail bonds, with a view to removing barriers to issuance and so to include retail investors. 

There are proposed changes to the prescribed content and length of the prospectus summary, and to requirements pertaining to supplementary prospectuses.   They introduce the option to incorporate future financial information by reference, provided the information is published using a regulatory information service.  

To encourage issuers to include more details on forward-looking information, a new concept of ‘Protected Forward Looking Statements’ (PFLS) will be introduced, being statements that are subject to a lighter statutory liability threshold.  The criteria when a statement could qualify as a PFLS is set out in the consultation paper, along with exclusions (where the standard liability threshold continues to apply). 

There will be new disclosure requirements for sustainability-labelled debt securities, in the first instance to disclose whether their debt instruments have been marketed as ‘green’, ‘social’ or ‘sustainable’ or issued under a bond framework or a similar document.  Where that is the case, issuers will be encouraged (but not obliged) to disclose further specified information.  These disclosures are generally in line with best practice and include the type of information that would typically be included in the bond framework.  New climate-related disclosure requirements are proposed in relation to issuers of equity securities but will not be applicable to issuances of debt securities.  Nonetheless, the FCA signposts bond issuers towards the existing non-handbook technical note guidance, which clarifies expectations in relation to disclosure of relevant sustainability risks.  They intend to review the guidance in due course. 

Finally, a new public offer platform regime is being introduced, which will allow firms to facilitate primary offers of securities to the public without publishing a prospectus.  It is anticipated that this regime will primarily facilitate smaller value retail investment and the details are subject to a separate consultation paper (CP24/13). 

The consultation period on the proposals ends on 18 October 2024.  The FCA want to finalise rules for the overall POATR regime by the middle of 2025, after which there will be a further period prior to the new rules coming into force. 

For further information on this or on bond issues generally, please contact Rachel Orgill-Harris or Michelle Pascua.