Simplified disclosure regime for low denomination bond issuances

The FCA is proposing to simplify prospectus disclosure requirements for non-equity securities by creating a single disclosure standard, based on the current requirements for wholesale issuances.

The current prospectus rules distinguish between non-equity securities with a denomination per unit below €100,000 (retail bonds) and those with a denomination at or above €100,000 (wholesale bonds).  Wider and more prescriptive disclosure, including a prospectus summary, is mandatory for issuances of retail bonds.  This measure was originally intended to protect retail investors. However, the protections have been duplicated by subsequent legislative initiatives. Meanwhile, in practice, the complexities and costs of enhanced disclosure have reduced or excluded retail investment in higher-quality corporate debt issuers.  The FCA has estimated that, due to the extra disclosure requirements, the average cost of a non-equity prospectus for retail bonds is 50-100% higher than for wholesale bonds.

On 31 January 2025 the FCA published consultation paper CP25/2 including proposals to create a unified and simplified disclosure regime under the new Public Offers and Admissions to Trading rules.  This follows the FCA's publication in May 2023 of an engagement paper on non-equity securities that sought views on, inter alia, whether market participants would welcome a single standard for disclosure in the prospectus regime, irrespective of whether the bonds are retail or wholesale.  Feedback had been supportive of a single disclosure regime, based on the current wholesale regime.  

CP25/2 supplements consultation paper CP24/12 from July 2024, where the FCA consulted on a wider set of changes related to admissions to regulated markets and primary MTFs.  The new regime retains many aspects of the current regime, but the UK authorities are looking to identify where improvements are possible and desirable.  One particular focus is eliminating unnecessary barriers to raising capital through non-equity issuances.  

The FCA hopes its proposals in CP25/2 will stimulate wider participation in the UK bond market and make it easier and cheaper to raise capital.  Alongside the single disclosure standard, the FCA has also put forward changes to alleviate burdensome requirements for certain “plain vanilla” corporate bonds. These proposals are built around a new concept of “non-complex listed corporate bonds”, which are defined as listed debt securities issued by a listed issuer that bear interest at a fixed or unmodified (i.e. no cap, collar or other similar structuring) floating rate.

Non-complex listed corporate bonds must be unsubordinated, unsecured and not subject to bail-in. They cannot be convertible, asset-backed or give rise to payment or delivery obligations linked to an underlying asset or index (other than a benchmark that tracks UK inflation).  A listed issuer could also use a wholly-owned subsidiary as the issuing entity. 

Enhanced requirements will continue to apply in respect of securities with more complex features, including asset-backed securities.

The six week consultation closes on 14 March 2025, with the near final rules expected during the summer of 2025 and implementation by the end of the year. The final outcome will cover all proposals in CP24/12 and CP25/2, not only the changes related to non-equity prospectus disclosures.

Please do contact us if you would like further information or help in engaging with the FCA consultation process.