New proposal on Prospectus Directive

03 September 2002



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The European Commission has presented an amended proposal for a Directive on Prospectuses that takes account of the European Parliament's opinion on the original proposal of 30 May 2001.

The amended proposal includes new, flexible arrangements for firms that were not subject to the original proposal while remaining consistent with the principles of protection and sound information for investors.

Internal Market Commissioner Frits Bolkestein said, 'This amended proposal takes account of the many comments received in the past year. Indeed, the Commission has shown that we have paid particular attention to the views expressed by the European Parliament and the Council.

The main changes compared with the Commission's original proposal are:
1)special EU rules for securities with an minimum denomination of € 50 000, which are designed to be traded by professionals. This includes:

  • different content for the prospectus,
  • no requirement for a summary,
  • different language rules and,
  • the possibility for the issuer to choose on a case by case basis to which competent authority they submit their prospectuses for approval.
    2) small and medium-sized companies would not be obliged to issue a prospectus if only a small amount of securities € 2,5m is offered to the public. Where a prospectus is required, its content would be adapted for smaller companies and the requirement to update information annually would be limited to a reference to their annual financial statements;
    3) the choice on the format of the prospectus (single or split document) is left to the issuer;
    4) introduction of enhanced disclosure standards in line with international standards for the public offer of securities and admission to trading (IOSCO);
    5) introduction of new prospectus formats for frequent issuers, and the duty on firms whose securities are listed on a regulated market to update the information at least once a year;
    6) possibility to offer or admit securities to trading on the basis of a simple notification of the prospectus approved by the home competent authority;
    7) concentration of the responsibilities in the home administrative competent authority;
    8) extensive use of the comitology process.

    The amended proposal identifies the second-tier implementing arrangements that will have to be decided by the comitology procedure: - for example, adaptation and clarification of the definitions and exemptions set out in the Directive to ensure both uniform application, and compatibility with developments on financial markets. The Commission will use the comitology to amend disclosure standards and deadlines; clarification of the rules on publication of the prospectus; and the technical arrangements for advertisements of a promotional and marketing.

    The Commission also states, that it “was unable to undertake a full consultation because the text is now in the co-decision legislative process with Council and Parliament. This does not, of course, mean that the Commission services have not had many informal discussions with interested parties. Indeed, Commission officials have regularly met representatives of different organizations and will continue to do so in future, in accordance with the Lamfalussy approach.”

    The week before the new proposal was published, several associations of the financial services industry raised serious concerns about the lack of transparency and consultation on the contents of the amended proposal of Prospectus Directive. Although the proposal is based on the four-level legislative process recommended in the Lamfalussy Report, the Commission has not formally consulted upon it. They also stressed that it is imperative that the Commission continues to set a good example of transparent consultation practices.

    In a first reaction on 9 August, Mrs. Randzio-Plath, Chairperson of the Committee of Economic and Monetary Affairs of the European Parliament welcomed in principle the modified proposal, but also claimed, that she 'cannot see any reason why this had to be done in such a hurry.' Her points of concern are:

  • the thresholds for derogations for SME’s and the issuance of bonds targeted to wholesale markets, where the Commission proposal envisages lowering the threshold to € 50,000.
  • the choice of the investors’ own language, questioning if this can be used as a base for legal claims on behalf of the investor.

    However, the Chairperson expects a highly controversial debate on the determination of the competent authority. “Without any prejudice to the outcome of our discussions in the European Parliament”, Mrs. Randzio-Plath stated, “I have serious doubts, whether we should leave the choice to the issuer.'

    At its first meeting after the summer break on 27 August, the Economic and Monetary Affairs Committee decided to organize a hearing to listen to the views of the financial services industry on October 2nd.

    The Committee’s Rapporteur, Christopher Huhne, said the new proposal was an “enormous improvement on the Commission’s first draft” in the sense that it was now ‘user friendly’ and accepted Parliament’s desire to see a short summary and comprehensible document for investors.

    Although Mr. Huhne is generally happy with the 'lighter touch' regime for SMEs, there are still some points of concern, which are among others the annual updating provisions, putting a too much of a burden on SMEs, and the choice of regulator for the issue of bonds. With the Member States divided over this question reaching agreement here will be no easy matter.

    The decision whether the modified proposal is sufficient to allow for a compromise with the Council and whether a new first reading will be needed remained open.

    First statements from the side of business associations as the Deutsche Aktien Institut, DAI, or the German Banking Association, BDB, criticize among others that the revised Directive still requires an annual update to a company's prospectus, which would be costly and bureaucratic.

    Even more seriously, the new draft still requires issuing companies to go to their home regulator in almost all circumstances, rather than allowing them to choose the Member State with the national regulator of the target market.

    Attached Documents:
    New Prospectus proposal
    FAQ (new Prospectus proposal)
    Commission press release
    EMAC-Chair press release Mrs. Randzio-Plath
    EMAC press release on hearing 10 october
    Joint Financial Services Industry Press Release
    DAI statement on new proposal (German)
    BDB statement on new proposal (German)

    © Graham Bishop