Capital markets union: Council agrees its stance on prospectus rules

On 8 June 2016, the Permanent Representatives Committee (Coreper) agreed, on behalf of the Council, a negotiating stance on new rules on prospectuses for the issuing and offering of securities. 

The draft regulation is aimed at reducing one of the main regulatory hurdles that companies face when issuing equity and debt securities. It sets out to simplify and alleviate administrative obligations related to the publication of prospectuses in a manner that still ensures that investors are well informed.

“This is an important reform that will help companies in need of finance to gain access to European capital markets”, said Jeroen Dijsselbloem, minister for finance of the Netherlands and president of the Council. “The prospectus is an essential instrument for investors, but legal requirements must not create unnecessary barriers to raising capital.”

The Council will confirm Coreper’s agreement at a meeting on 17 June 2016, and will ask the presidency to start talks with the European Parliament. The aim is to adopt the regulation at first reading.

A reform of prospectus rules is amongst measures announced by the Commission under its 2014 “investment plan for Europe” with the aim of improving the business environment.

And it is a second major building block of the EU’s 2015 plan to develop a capital markets union. In December 2015, the Council reached a similar agreement on proposals to facilitate the development of a securitisation market in Europe. The capital markets union is due to be fully functioning by the end of 2019. The aim is to strengthen the role of market-based finance, alongside bank finance, in the EU economy.

Prospectuses present information about a company that enables investors to decide whether to purchase securities issued or offered by that company. The law requires their publication when securities are offered to the public or admitted to trading. However SMEs in particular can be deterred from issuing or offering securities because of the paperwork and costs involved. The draft regulation therefore sets out to provide all types of issuers with disclosure rules that are tailored to their specific needs, whilst making the prospectus a more relevant tool for informing potential investors.

Transforming an existing directive into a regulation, the text will moreover reduce divergences that have emerged in implementation by the member states. It will enhance the coherence of prospectus rules throughout EU single market, in keeping with the goals of the capital markets union.

The proposal establishes specific rules for companies already listed on a regulated market that wish to raise additional capital buy means of a secondary issuance, as well as for SMEs.

It also sets out to achieve greater convergence between prospectus rules and other disclosure rules.

The regulation requires a qualified majority for adoption by the Council, in agreement with the European Parliament. (Legal basis: article 114 of the Treaty on the Functioning of the European Union.)