The latest from Esma and the European Commission
The main bulk of the new Prospectus Regulation is quite
recent, with 90% of the new regulation applicable from July 21
2019: "It’s been a long journey";
Thanks to consultation papers from Esma, there has been a
great collection of feedback since 2017: "So far, market
participants seem satisfied";
It’s still too early to assess the impact of
the risk factor requirements;
One of the main points of the regime was the extension to
cover securities. Regulators want to avoid the risk of a spill
over effect for retail investors – the point is for
them to benefit, and have a full prospectus available.
Panellists not aware of what the market appetite will be like
yet;
Esma is confident that the way things are currently shaped
will guarantee investor protection. Although other Q&As are
currently in the pipeline, as there are other topics the
regulator would like to address;
There has been some discussion around including
environmental, social and corporate governance (ESG)
disclosures on the prospectus.
National regulatory authority views, messages,
clarifications and interpretations on the key technical areas
of the Prospectus Regulation, including risk factor ordering
and materiality
Regulators are getting to grips with the Prospectus
Regulation, and feedback from users is slowly starting to come
through. The market is grappling with issues, and players are
working well together to come up with solutions;
So far, there have been around 25 prospectuses received
– mostly from shares issues. Much of the issuance has
been done automatically;
As of July, the Autorité des marchés
financiers (AMF) had approved eight prospectuses
– mostly equities. One of the main area of focus, for
supervisory teams, has been around risk factors. Most of the
French issuers will continue with universal documents (around
300 of them);
There are questions in particular as to the
comprehensibility of the regulation –
there’s a need to make the prospectus more
accessible to users, more comprehensible. Long documents
– which is not to say that length makes it less
understandable – but often those long structures are
less comprehensible;
The AMF anticipates a discussion around risk factors soon.
Guidelines should be very useful in terms of how to categorise
risk factors;
They say they are very aware of their role in challenging
risk factor disclosure. Responsibility and liability lines are
important;
Regulators say they have been getting a lot of questions
around Brexit over the past 12 months: with regards to transfer
of approval and testing; in terms of moving programmes
elsewhere, such as Ireland for example. On the subject of
Britain and the EU, panellists said that it is important to
differentiate the implications of a hard and of a soft
Brexit;
There is a question mark around knowing whether the London
Stock Exchange will be accepted as an equivalent market
– in this context, EU regulators say they
won’t be able to accept it.
The Prospectus Regulation in practice, the impact of
Brexit, and other major issues and developments affecting the
industry today
Challenges under Priips and Mifid II need to be taken into
account;
The new Prospectus Regulation hasn’t really
changed the commercial motivations one should consider when
choosing an issuer, and in that sense their impression on the
changes is neutral;
When issuers are preparing a wholesale prospectus for
institutional investors there doesn’t seem to be a
corresponding benefit for market participants;
In the wholesale space at least, not much more has been
achieved than with previous prospectuses. If anything, this has
just made things "a bit more complex";
Looking across the equity capital market, it was noted that
some of the continental regulators have been challenging.
Experiences show that it has definitely had an impact on
transactions timetable;
Panellists noted that, in some cases, it’s been
business as usual, while others have taken longer to get
through. It’s not an equal experience across the
board;
This creates an arbitrage risk, and there could be a market
perception that there is a regulatory arbitrage between
competent authorities. Overall, risk factors have to be ranked
– and regulators have to be vigilant with regards to
that;
On the transition away from Libor, in relation to the
Prospectus Regulation, it was regarded as high on
issuers’ radar. Panellists felt that the next 12
months should see awareness around this improve a lot.
Wouldn’t say issuers are rushing to do their
transition – but it’s certainly something
they talk about. Many issuers are looking to update their
fallbacks. Some are adopting a wait-and-see attitude.
The latest on regulated and exchange regulated markets
– views from Ireland, the UK and Luxembourg
There is some scepticism in the market about the burden of
prospectus rules;
Interest in the wholesale investor market has been
mixed;
Responses from financial players in London on the matter of
a wholesale investor market have been mixed, with both keen
interest and scepticism;
Luxembourg’s stock exchange appears to have had
the most interest, though no prospectuses have been approved
yet;
Professional-only segments viewed as a good way of "taking
the 'r’ out of Priips";
Ireland’s market is not yet seeing a demand for
professional-only segments;
The panel feels that stock exchanges should give
opportunities to the market to prove that they are sustainable,
welcoming the increased interest in sustainable finance in
Europe.
Green bonds and the move towards more sustainable financing
- what you need to know
The majority of the market is still operating on a voluntary
best practice mode, with limited legislative guidance having
materialised;
High growth was recognised in the market by the panel, with
one participant saying that the market was "near mainstream
status";
It’s still predominantly a European theme,
though there is increased interest in North America and
Asia;
The panel greeted the EU as having taken up the challenge on
this matter. However, the panel got a lukewarm response when
asking who was aware of the EU action plan;
There was some concern that stringent or over-ambitious
regulation could hinder the market;
Panellists felt that this won’t remain niche
for long, with one saying that "we will be seeing this on our
desk soon";
It was noted that there has been an emergence of sustainable
finance lawyers. Panellists also called on in-house lawyers to
be more visible, and help companies confront the frontline
issues such as climate change.
Other key market and regulatory developments affecting the
primary market
The panel acknowledged that work is being done in Europe and
beyond to ensure that market participants are ready for the end
of Libor in 2021;
Under Sonia, there have been 16 securitisation transactions
and most of these have been issued by financial institutions.
BMW has also issued a bond. This was greeted by the panel as a
good step that it is being adopted not just by financial
institutions, but also by the market;
There has been speculation that there could be a European
bond issued soon;
Panellists warned that market participants should not expect
support from legislation, as authorities have made clear that
this is a market issue;
There is a risk of shareholders or bondholders not voting in
favour on the matter of transitioning away from Libor;
The panel agreed that the universal registration document is
not yet being widely used in the European market, but would be
good to have at EU level, especially with the prospect of
Libor-related litigation.