EU Prospectus Regulation Conference: key
Esma and the European Commission on the progress of
the consultation on the Prospectus Regulation Level 2
- Johan van Gruijthuijsen, policy officer of the prospectus
team, securities markets unit, European Commission
updated the audience on the Commission’s
progress surrounding level 2 measures.
- Discussing summaries, he indicated that Esma must come up
with ideas for the summary of the EU prospectus, which has a
maximum of seven pages.
- Moving forward, once technical advice has been received
in March next year, the Commission will draft delegate act
that will be prepared and discussed with member states. Its
intention is to draft one single delegated act rather than
multiple delegated acts.
- The delegated act will be part of Esma’s
feedback mechanism, allowing stakeholders the opportunity to
comment on the final draft before it is adopted. The deadline
is to adopt the delegated act before January 31 2019.
Regulators’ feedback panel: national
regulatory authority views on Level 2 and the impact of
- Senior figures from French, Irish, Dutch, German and UK
regulators shared their experiences working with level 2
- Most agreed that the risk factors section should be
slimmed down. "Numerous boilerplate pages are not helpful,"
said one speaker. "We must focus on the relevant risks
- France’s AMF representative discussed the
Universal Registration Document, a policy suggestion at
European level, and a long-standing feature of French
- It is an optional, specific registration document that
contains legal, financial accounting information. It is
multi-purpose and not only for the prospectus but also as a
single vector of communication for the company. While popular
in France, other panellists questioned its applicability
across non-equity instruments.
What are the key concerns for industry with the
Prospectus Regulation and related legislation?
- The prospectus regime has been constantly evolving since
it came into effect in 2003 and was reviewed in 2008, but the
regime for wholesale investors remains broadly
- One of the main changes is the distinction between
wholesale and retail investors – it’s
important for some issuers to have the flexibility to offer
securities to qualified investors (QIs) only, subject to
lighter disclosure requirements (in the case of subordinated
securities, CoCos and equity conversion products for
instance, which aren’t suitable for retail
- Some jurisdictions outside of the EU are gaining market
share because of their ability to cater to specific needs or
securities (Switzerland is seeing a surge in the listing of
convertibles, for instance).
- The consensus in the industry is that a prospectus needs
to contain only the information that is material to a
particular set of investors. Issuers that need to create a
prospectus are those issuing debt for the first time, or
those in challenging markets or securities.
- "I question whether retail investors can or want to read
a long prospectus because of the length and level of
detail/sophistication," said one panellist. He added: "The
100k denomination on offering has acted as a substitute for
sophistication in the past few years."
How will regulated markets be affected by the new
PR, Priips, Mifid II product governance, Brexit, and other
upcoming regulation? Views from Ireland, the UK and
- A prospectus rules fatigue has set in among stock
exchanges, many of which have been dealing with iterations of
the rules for well over a decade. The absence of securities
litigation suggests the market doesn’t need
- The EU Omnibus II proposal, which passes authority for
prospectus approval from NCAs to Esma, was deemed
- NCAs in Europe concerned with the DCM have over the years
built up experienced and competent teams that allow them to
respond quickly to market needs. Issuers know there are
competent authorities when it comes to approving debt
prospectuses. "So this proposal is a solution to a problem
that is not there. It won’t add value to issuers
or investors," said one speaker.
- Many exchanges believe that US issuers are choosing to
bypass the European listing process, something that has
become more pronounced in the last 12 months since the
introduction of the MAR. Latin American issuers are also now
choosing Singapore over Europe.
- Speakers discussed product governance, and praised the
ICMA position of trying to harmonise the approach to product
governance, coalescing all industry parties to achieve
Understanding the interrelationship between Mifid II
and the Prospectus
- Issuers now don’t just need to think about
what product information they should disclose to investors,
but also about whether the product they have designed is
suitable for particular investors.
- With Mifid II a key focus for many who are also
responsible for responding to the Prospectus Regulation, the
session explored the interconnectedness of the two
- The regulators are keen on the Capital Markets Union, but
that is to be balanced with Priips, product governance rules
and the Prospectus Regulation.
- Product governance is new to the Mifid regime. It imposes
a holistic view across the whole life cycle of the product,
including post-sale responsibilities.
- Exchanges active in professional-only markets are facing
challenges around this when selling to private banks that
wish to then sell onto retail – there is disconnect
and potential for risk.
- Many of the private banks will be selling to private
investors, notwithstanding that they are high net worth. On
the private bank side there typically aren’t
distribution agreements in place.
- There are challenges around extraterritoriality. Most
distributors in Asia have no formal arrangement with their
European distributor. One bank said that it had 800
relationships in place, some dormant, some active.
Demystifying Priips - an essential and practical
guide to the latest position
- From 2018, any investor receiving a structured product
should receive a key information document (KID), in their own
language. The perimeters around what constitutes a Priip are
not clear and delineated because the definition is not
precise. Some conclusions can be drawn from level 1 and 2
guidance and Q&As: that structured deposits are in and
traditional deposits are out for instance.
- Each institution must take a risk-based decision and then
follow through with risk committees and product governance
- ICMA has suggested applying a legend that states that the
issuance is not for retail – but this
isn’t always clear cut on the basis that a
private bank sells onto retail.
- All derivatives require a KID, regardless of whether the
product is for hedging or investment purposes. There are
implications for many markets, including Scandinavia where
OTC investors are considered retail.
- Guidance given by the Commission in July 2016 on
discretionary wealth managers which hasn’t been
confirmed in a formal Q&A states that if a discretionary
wealth manager is making a decision on behalf of retail you
should still consider them an institutional.
- Manufacturers and distributors are not always easy to
identify. Manufacturers are the key party with the obligation
to produce the KID and any translation. The definition of
managers in level 1 is not easy to interpret.