European Commission Seeks Public Comment on Prospectus Directive

We are indebted to my colleague John Filar Atwood for the below post.

The European Commission has issued a consultation paper on proposals to improve and simplify the prospectus directive. The directive tries to ensure that investors receive clear and complete disclosure when making investment decisions. Proposals to change the directive are part of the EC’s action plan to reduce administrative burdens on EU companies. Comments are due to the Commission by March 10.

The prospectus directive introduced a single passport for issuers, making securities available to investors either through a public offer procedure or by admitting their shares to trading. Under the directive, once a prospectus is approved by the regulatory authority in one member state, it then has to be accepted everywhere else in the EU. In order to ensure investor protection, approval is granted only if the prospectus meets common EU disclosure standards.

After consulting with, among others, the Committee of European Securities Regulators and the European Securities Markets Expert Group, the EC concluded that some elements of the prospectus directive should be reviewed.

The consultation paper starts with a general assessment of the overall effectiveness and efficiency of the prospectus directive. The Commission concluded that the application of the directive is broadly positive. In general, most market participants appear satisfied with the disclosure regime established by the directive, according to the Commission, and they consider it an important step towards the establishment of a single European securities market.

However, the Commission identified some elements in the directive that may create in practice unnecessary burdens and unjustified costs for companies and intermediaries. The issues include the definition of qualified investors, the revision of exempt offers, the revision of the annual disclosure obligation, a time limit for exercise of right of withdrawal and certain thresholds of the directive.

In addition to offering proposals to address each of these areas, the consultation paper discusses issues that have been brought to the Commission's attention but are not included in the draft proposals. The EC said that it is anxious to receive feedback on these issues, including the effectiveness of the prospectus summary, disclosure requirements for offers with government guarantee schemes and disclosure requirements for small quoted companies and for rights issues.

The EC noted that it wants to fully understand and assess the financial and other impacts of the proposal as well as any alternative approaches. As a result, commenters are invited to offer their views on compliance costs, the impact on competition and other impacts, costs and benefits.

John Filar Atwood