This week, Jonathan Hill, EU Commissioner responsible for Financial Stability, Financial Services and Capital Markets Union, has presented a proposal to overhaul the Prospectus Directive (regu-lates among other which information a company has to provide potential investors with). On the one hand, this shall reduce cost for companies, enabling them to make savings; the aim on the other hand is to provide better protection for investors, as any information provided shall be more concise and comprehensible.

The background for this foray by the European Commission is to give small and medium-sized enterprises (SME) easier access to financing with regard to issuing shares or debt securities.

Previously, if a company wanted to raise funds from the capital market, it always had to submit a prospectus. The company would use this prospectus to present its main business sectors, finance and shareholding structures. The investor had to be provided will all information he required to enable him to make his decision whether to invest in a company. Prospectuses comprising hundreds of pages meant a high cost factor for companies. Apart from that, according to the Commission, many investors were reluctant to spend the time to read such detailed information.

According to Commissioner Hill, the presented overhaul of the existing Regulation shall reduce unnecessary and superfluous administrative expense and at the same time increase investor protection and trust in capital markets. These targets are to be achieved based on the following amendments:

• No EU Prospectus required if the capital to be raised remains below € 500.000. Previously, this threshold had been € 100.000. Member States will also be able to double the threshold for their domestic markets from currently € 5 Mio to € 10 Mio.
  
• Lighter regulations for SMEs. According to Hill, these are less expensive and less complicated prospectuses, which are geared to the needs of SMEs and their investors and do not involve unreasonable costs. At the same time, the threshold, based on which this light regulation may be applied, shall be raised; from a market capitalisation of € 100 Mio to € 200 Mio.
  
• In future, prospectuses shall be shorter and clearer. The amount of EU-wide information that is needed will be specified more clearly; it can be referred to and will avoid any repetition.
  
• Simplified prospectus for secondary issuances
  
• Option to use a “Universal Registration Document” available to companies that tap into capital markets more frequently, i.e. a universal registration form is submitted annually, which includes all necessary information. Regularly updated, the URD will reduce the approval process for a new prospectus to 5 days.
  
• Free online access of European Securities and Markets Authority (ESMA) to all prospectuses approved in the European Economic Area. In addition, the prospectuses and all documents associated with them must be directly available on the website of the issuer to enable simple access in all relevant languages.

These points will provide clear benefits to self-financing companies.

With regard to investor protection, the Directive states that independent of the place where a prospectus is published, all prospectuses have to comprise clear, comprehensive and standardised investor information, which is required for making any investment decisions.

Further Information:

Press Release European Commission

Proposal for a Regulation

Capital Markets Union: an Action Plan to boost business funding and investment financing