30 October 2018

ESMA publishes the responses to its Consultation on draft guidelines on risk factors under the Prospectus Regulation

Italian Banking Association

ABI welcomes the opportunity to share its comments on ESMA’s Consultation Paper regarding guidelines on risk factors under the Prospectus regulation. The following comments have been written from the point of view of banks acting as issuers of debt capital market instruments.

We would like to highlight as one of the most important comment to the proposal that, as the Prospectus Regulation already provides for different formats of the prospectus for retail and wholesale offerings (i.e offerings with 100.000 euro of minimum denomination), we propose that the guidelines allow NCA to have tailor-made approaches in reviewing risk factors depending whether the prospectus is aimed at retail or wholesale investors. Such a proposal would allow issuers to have  risk factors more focused and more useful for each category of investors

Full ABI response

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EuropeanIssuers

EuropeanIssuers welcome ESMA’s consultation and would like to insist on the following points:

the specificity criterion has to be clarified, in order to make sure that risk factors that apply to a wide range of companies, but are still specific to every one of those companies, are considered specific according to the guidelines on risk factors.

the description of the potential negative impact of the risk factors must not result in an obligation for issuers to produce quantitative information or to disclose information which would endanger their operations or create new risks.

the concept of mitigating language should be clarified to ensure that description of specific risk management strategies and techniques does not fall under this definition.

the limit of ten categories of risk factors does not ensure comprehensibility for investors and should not be imposed.

Full EuropeanIssuers response

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ICMA

Two key areas of concern are: (a) the need for NCAs to tailor their review of risk factors depending on whether the prospectus is aimed at retail or wholesale investors; and (b) the disclosure of quantitative information under guideline 4.

We also note the following general points.

The flexibility envisaged by ESMA is welcome and must be applied in practice by NCAs

The references in the draft guidelines to different approaches being taken in relation to different types of prospectuses is very helpful. This concept is in line with the general approach to prospectus content in the Level 1 regime. It will be particularly important that NCAs observe this flexibility and incorporate it into their application of the guidelines and review processes, in order to give effect to the spirit of the Level 1 regime.

Set out below are two examples of where flexibility of approach should be adopted by NCAs, but there will be others.

For debt securities typically issued under multi-product base prospectuses, it is very helpful that ESMA has acknowledged that a more flexible approach to risk factor disclosure may be required.

NCAs should also tailor their review depending on whether the prospectus is aimed at retail or wholesale investors. Where the prospectus relates to wholesale debt securities, there will be fewer concerns in relation to the ability of wholesale investors to navigate, read and understand risk factors. This means that a more flexible approach should be taken in the application of those guidelines relating to the presentation of risk factors across categories in the context of prospectuses related to wholesale debt securities.

The general concept of different approaches to disclosure being appropriate for wholesale and retail investors is enshrined at Level 1. Given the importance of observing this key Level 1 principle, it would be helpful if the guidelines included this point, for example in the “Background” section and in the notes to draft guidelines 7, 8, 9, 10 and 11 relating to presentation of risk factors across categories and focused/concise risk factors (to the extent those draft guidelines are retained in the final guidelines).

Example risk factors should not be viewed as templates

It will also be important that the example risk factors given in the proposed guidelines are viewed by the NCAs as examples, and not templates against which risk factor disclosure should be matched.

Full ICMA response

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Swedish Bankers’ Association

The Swedish Bankers’ Association believes the draft guidelines to be far too detailed. As seen in the detailed comments below, we think that the guidelines should allow flexibility to include some generic factors regarding e.g. macro-economic risks in the prospectus.Even if a risk factor is of a type that appears in many prospectuses, it is still entirely appropriate for an issuer to disclose it where it is relevant to that issuer, the guarantor or the securities.  Moreover, it considers the requirement to include quantitative assessments to be misdirected;it would be very difficult to quantify and disclose the negative impact of many types of risk factors in a non-misleading way .

Furthermore, it could be discussed whether ESMA has the mandate to include wording in the guidelines to the effect that supervisory authorities should refrain from approving a prospectus as suggested in guidelines 2, 3, 6 and 7. The scrutiny of prospectuses is the responsibility of the NCA and in this regard ESMA should not instruct the NCAs without any legal ground. The mandate to draft guidelines on this topic is based on article 16.4 in the prospectus regulation:

In order to encourage appropriate and focused disclosure of risk factors, ESMA shall develop guidelines to assist competent authorities in their review of the specificity and materiality of risk factors and of the presentation of risk factors across categories depending on their nature.”

In its opinion,  this does not give mandate to ESMA to, as in the guidelines mentioned above, give instructions to the NCAs to not approve prospectus.

Full Swedish Bankers' Association response

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Full consultation paper

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