20150701 Meeting with Maria Teresa Fabregas Fernandez on Prospectus Directive Revision
EuropeanIssuers met on 1 July 2015 with Maria Teresa Fabregas Fernandez, head of unit of Securities Markets at DG FISMA, the European Commission, and her team (Julia Lemonia Raptis, Frédéric Pelèse (one other) and Uwe Eiteljorge).
Ms Fabregas announced that she is moving to another unit as from 1st August. We hear she will head the Financial Markets Infrastructure Unit (securities law, CSDs).
She also mentioned that the Commission is starting discussions with the Member States on the revision of the Prospectus Directive on 2 July.
Ms Haan introduced the discussion by saying that companies are not happy with the current prospectus requirements and that passporting is not really being used by many companies (as recognised by ESMA SMSG). The system should be designed starting at the local level with a possibility for companies to opt in to cross-border passporting if they choose so. Currently prospectus is too burdensome and costly, and therefore should definitely not apply for MTFs, while for SME Growth Markets, if something would be designed, would have to be proportionate and developed following the Think Small First principle. Ms Haan also mentioned that there is need for more industry guidance for national competent authorities in terms of how to design well-functioning IPO markets (some younger markets, e.g. Romania, struggle doing that – what actors should be in charge of what).
Ms Fabregas mentioned that regarding the last point she sees it as an area for industry action.
Capital Markets Union is something that they want to do together with the industry.
Ms Haan said that pre-approval by the competent authorities (pre-vetting), especially in case of secondary offerings should be abolished. She mentioned that before Prospectus Directive was introduced, pre-vetting was done by the exchanges and/or advisors.
Ms Fabregas responded that the intention behind the upcoming revision is not only to alleviate burdens for companies, but also to ensure appropriate investor protection and that the change in pre-approval procedures was not only due to passporting.
Ms Raptis mentioned that the Commission has examples of situations where currently Prospectus exemptions apply (so below the thresholds) and pre-approval is done e.g. by auditors and there are problems due to conflicts of interests (as they are paid by companies). Also the stock exchanges are now for-profit entities, rather than mutual and so are also conflicted.
Ms Fabregas stressed that the Commission is not in favour of raising the exemption thresholds (what we propose in our response: to raise the fundraising threshold from 5 million to 20 million euro and number of persons/investors an offer can go to from 150 to 500 per Member State) as they believe it won’t work for all countries (as in some Member States 20 million may already exclude all their companies) and also they would like to avoid fragmentation of the market. Instead they would like to do a major simplification and alleviate the burdens of the current prospectus regime.
The Commission showed interest in some more specific prospectus simplification proposals.Ms Palinska highlighted the main proposals based on EuropeanIssuers position. Specific interest from the Commission side was devoted to a summary prospectus and the idea of replacing it with a document similar to a Key Information Document in PRIPs regulation, which was floated by some investors. They seemed to acknowledge the issues with the risk and reward indicator as well as liability and that it should not be attached to the summary itself but rather to the Prospectus itself. But at the same time they wanted to understand whether these were the main problems of this approach.
The Commission was also very interested in more detailed simplifications regarding proportionate prospectus regime, as they do acknowledge it currently does not work. They would welcome examples of countries where a national regime was built up from a scratch providing for a more “layered” approach and requiring simplified admission documents from smaller companies created specifically for them. They mentioned that while looking at AIM, they believe that their admission document is basically a simplified Prospectus (so they started with the Prospectus Directive disclosure but simply with fewer items).
Ms Fabregas stressed that they would like to be ambitious, simplify PD at the EU level, make sure that procedures for approval are shorter and more transparent and offer appropriate flexibility. At the same time they think that some aspects of PD work well in different countries, e.g. some seem to like the base prospectus, others the tripartite prospectus, so these may be based on national preferences, whether of companies or of the supervisory authority.
Ms Raptis mentioned that one of the reasons why prospectuses are cluttered is due to the legal advisors.Ms Haan agreed that companies find it difficult to push back against legal advisors, as most companies only go through the IPO process usually once and so do not have the necessary experience in the subject matter to challenge their advisers. The Commission was interested to hear what could be done to remedy that. Ms Palinska mentioned the educational programmes for companies like ELITE, which allow companies to meet with experts from the entire IPOs ecosystem, as well as Venture Capital and Private Placement specialists, advisers, etc. Promoting the creation of similar education programmes for companies in other Member States would be very useful for companies.
Ms Haan also pointed towards the example of NASDAQ in Denmark, where they had found that the local legal advisers were over-interpreting the requirements and so had persuaded them to scale these back.
Regarding liability regimes, the Commission had looked at possible harmonisation, but had concluded that this would be too problematic.
Concluding, the Commission would welcome any further proposals on more detailed simplification of the current prospectus for the Regulated Market, as well as of the proportional prospectus regime. The intention is that the simplification exercise will be ambitious.