Prospectus Regime Research Articles

The Markets in Crypto-Assets regulation (MiCA) and the EU digital finance strategy

The European Commission published its new Digital Finance Strategy on 24 September 2020. One of the centrepieces of the Strategy is the draft Regulation on Markets in Crypto-Assets (MiCA), designed to provide a comprehensive regulatory framework for digital assets in the EU. With MiCA the EU Commission has proposed bespoke regulation for utility tokens and stablecoins including payments tokens, asset-backed tokens and “significant” stablecoins (including “global stablecoins”). As to investment and securities tokens, the EU Digital Finance Strategy relies on the existing body of EU financial and securities law, with the Prospectus Regulation, the MiFID framework as well as the UCITSD and AIFMD at its core, with the intention to incorporate necessary changes as part of the existing ongoing amendment and review processes. MiCA provides for a bespoke prospectus regime for crypto-assets, with the issuing of e-money tokens (i.e. payment tokens), asset-referenced tokens (also known as stablecoins) and crypto-asset services being regulated activities subject to licensing. While supervision of crypto-asset service providers (CASPs) will rest with national authorities, supervision of significant asset-referenced and e-money tokens will rest mainly with the European Banking Authority. The EU Digital Finance Strategy marks a very important step for the EU in developing both innovation and the Single Market. At the same time, while MiCA is an ambitious legislative project, there is room for improvement. First, the scope of MiCA remains uncertain as the draft MiCA does not clearly delineate between utility tokens subject to MiCA and investment tokens subject to EU securities law. Second, a systematic approach to EU law is absent. Thresholds and concepts known from other EU laws should be firmly embedded in MiCA. Third, a framework for supervisory cooperation with regard to truly global stablecoins is missing.

The Prospectus Regulation. The long and winding road

This study focuses on three main topics: it firstly goes through the purposes of mandatory disclosure, it then develops an analysis on prospectuses and supplements ap-proved in seven EU countries, and it finally sets out the new regulatory framework. The first part highlights the twofold importance of prospectuses, as a means of re-ducing informational asymmetry and helping investors make informed investment decisions. This chapter compares all the pros and cons of mandatory disclosure and some of the main scholars’ viewpoints on this topic. There is plenty of literature supporting the idea that information overload is counterproductive while others maintain that it is crucial to well-functioning markets. Above all, empirical research shows that market efficiency is also un-dermined by behavioural biases, which is typical of both retail and sophisticated investors. For all these reasons, policymakers have gradually addressed these problems introducing a simplified prospectus with Directive 2001/107/EEC (UCITS III), the Key Investor Information Document (KIID) with Directive 2009/65/EU (UCITS IV), the prospectus summary with Pro-spectus Regulation 1129/2017. Therefore, it is certainly true that standardization - while preserving the content of disclosed information - is a core challenge that policymakers are currently facing. Since the two main objectives of Prospectus Regulation 1129/2017 are market effi-ciency and investor protection, the second part presents an overall assessment of whether and to what extent it has achieved its original purposes. Market efficiency was measured through prospectus activity while investor protection was assessed by looking at the number of pages and the dimensions of prospectuses and supplements. Data was compared from seven EU countries. Overall, the total number of approved prospectuses in the years 2006-2018 fell dramatically and the number of prospectuses passported in and out of the coun-tries analysed presents substantial differences. The research also reveals substantial discrep-ancies in the average number of pages of the documents approved in each country. Above all, the macroscopic divergencies highlight the different levels of complexity in the opera-tions underlying the placement of securities, and consequently the need for an alternative market disclosure. The third part concerns the new regulatory framework and it deals with all the main innovations brought about by the latest Prospectus Regulation 1129/2017 such as: the new prospectus summary, the new rules on risk factors, the simplifying disclosure regime for SMEs and SMEs growth market and the Universal Registration Document. Despite its primary intent of achieving harmonization in the prospectus regime, the Regulation does not deter-mine a common set of rules in terms of liability. This means that securities litigation and liability regimes related to securities issuances are largely based on national law, thus result-ing in a highly fragmented framework. Especially with regard to civil liability regimes related to national supervisory authorities, the national legislations of the countries analysed seem to follow divergent paths. This work analyzes and compares those differences, and then offers some final tips for avoiding liability fragmentation within the EU countries, which is finally recognized as one of the main obstacles to achieving regulatory harmonization while at the same time granting market efficiency and investor protection.

The Prospectus Regulation (Regulation (EU) 2017/1129) and the Recent Proposal for an EU Recovery Prospectus: Elements of Continuity and Change with the Past and the Way Forward

The purpose of this article is twofold. First, it aims to provide a concise, but comprehensive overview of the Prospectus Regulation’s main provisions, highlighting the changes introduced to the previously applicable regime. Second, it carefully analyses the way in which the EU legislator strives to deploy the prospectus regime as an effective response to the current COVID-19 pandemic crisis.The point of reference, when analysing the provisions of the Prospectus Regulation, is the Prospectus Directive and emphasis is placed on the obligations of “issuers” or “offerors” making offers of securities to the public or persons asking for the admission to trading on a regulated market of securities (see below, under B). The article also makes a brief reference to the obligations of financial intermediaries (mainly as underwriters) (under C) and, finally, provides a comprehensive analysis of the recent Proposal for a temporary EU Recovery Prospectus regime (under D).

The Markets in Crypto-Assets Regulation (MICA) and the EU Digital Finance Strategy

The European Commission published its new Digital Finance Strategy on 24 September 2020. One of the centrepieces of the Strategy is the draft Regulation on Markets in Crypto-Assets (MiCA), designed to provide a comprehensive regulatory framework for digital assets in the EU. With MiCA the EU Commission has proposed bespoke regulation for utility tokens and stablecoins including payments tokens, asset-backed tokens and “significant” stablecoins (including “global stablecoins”). As to investment and securities tokens, the EU Digital Finance Strategy relies on the existing body of EU financial and securities law, with the Prospectus Regulation, the MiFID framework as well as the UCITSD and AIFMD at its core, with the intention to incorporate necessary changes as part of the existing ongoing amendment and review processes. MiCA provides for a bespoke prospectus regime for crypto-assets, with the issuing of e-money tokens (i.e. payment tokens), asset-referenced tokens (also known as stablecoins) and crypto-asset services being regulated activities subject to licensing. While supervision of crypto-asset service providers (CASPs) will rest with national authorities, supervision of significant asset-referenced and e-money tokens will rest mainly with the European Banking Authority. The EU Digital Finance Strategy marks a very important step for the EU in developing both innovation and the Single Market. At the same time, while MiCA is an ambitious legislative project, there is room for improvement. First, the scope of MiCA remains uncertain as the draft MiCA does not clearly delineate between utility tokens subject to MiCA and investment tokens subject to EU securities law. Second, a systematic approach to EU law is absent. Thresholds and concepts known from other EU laws should be firmly embedded in MiCA. Third, a framework for supervisory cooperation with regard to truly global stablecoins is missing.

The Contents of the Prospectus: Rules for Financial Information

In keeping with the Prospectus Regulation’s aim of providing investors with any necessary information that is material for making an informed assessment of, among other things, the assets and liabilities, profits and losses, financial position, and prospects of the issuer, financial information is a key element of the prospectus information package. Hence, although under EU law the content and the format of a prospectus both depend on a variety of factors, such as the type of issuer, security and issuance, the prospectus must always provide detailed information concerning the issuers’ assets and liabilities, financial position and profits or losses. Against this backdrop, and with a view to developing a comprehensive analysis of the rules for financial information set out by the EU prospectus regime, I divide this Chapter as follows: Part II provides an overview of relevant rules concerning the financial information that must be included in the prospectus; Part III examines historical financial information; Part IV deals with some specific issues concerning pro forma financial information; finally, Part V analyses the definition of profit forecasts and estimates along with related audit and disclosure requirements. Part VI sets out some concluding remarks.

New prospectus regime: A critical analysis of chosen key changes

The 2015 Impact Assessment Working Document evaluation has identified numerous issues which seemed to hinder the efficiency of the EU capital markets. To address those issues, the new prospectus regime was introduced by the Prospectus Regulation PR EU 2017/1129, which replaced the previous Prospectus Directive and will be directly binding and fully applicable in all EU Member States from 21 July 2019. The main aim of the PR is to ensure investor protection and market efficiency while enhancing the internal EU market for capital. In order to achieve this goal, Regulation 2017/1129 introduces a number of significant changes, in particular the form of regulation, the scope of the prospectus regime, and exemption thresholds from the prospectus obligation. It also introduces new institutions e.g. the universal registration document and completely new types of prospectuses EU growth prospectus, prospectus for secondary issuances under the proportionate disclosure regime. The aim of this article is to analyze and evaluate the chosen changes introduced by the new prospectus law. Nowe prawo prospektowe: analiza krytyczna wybranych istotnych zmianDokument roboczy Służb Komisji Europejskiej z 2015 roku wskazał wiele problemów utrudniających efektywność rynków kapitałowych UE. W celu poprawy sytuacji wprowadzono nowe prawo prospektowe, zastępując wcześniejszą dyrektywę prospektową rozporządzeniem prospektowym UE 2017/1129. Rozporządzenie będzie bezpośrednio wiążące we wszystkich państwach członkowskich UE od dnia 21 lipca 2019 roku. Jego zadaniem jest zapewnienie ochrony inwestorów i poprawa efektywności rynków a także wzmocnienie wewnętrznego rynku kapitałowego UE. W tym celu rozporządzenie wprowadza szereg istotnych zmian, w szczególności dotyczących formy regulacji, zakresu obowiązywania czy progów zwolnienia z obowiązku publikowania prospektu emisyjnego. Wprowadza również nowe instytucje np. uniwersalny dokument rejestracyjny i zupełnie nowe rodzaje prospektów emisyjnych prospekt emisyjny UE, prospekt emisyjny dla emisji wtórnych w ramach proporcjonalnego systemu obowiązków informacyjnych. Celem tego artykułu jest analiza i ocena wybranych zmian wprowadzonych przez nowe prawo prospektowe.

An Analysis of the Prospectus Regime: The EU Reforms and the ‘Brexit’ Factor

‘Brexit’ creates significant new challenges; it risks placing the UK’s position as a leading capital markets centre in jeopardy, and it places existing, long-established market access arrangements in doubt. Yet, it also creates opportunities. In particular, the UK could have the ability going forward, should it so wish, to extricate itself from the EU’s prospectus regime. Indeed, the UK is especially well-equipped in this regard, given the dominant role it plays in global and EU capital markets, and given that, historically, the UK has been closely involved with, and a key influence in the design of EU regulations, both with respect to capital markets, and more generally in relation to financial regulation. Accordingly, via an analysis of the existing prospectus framework, and the recently revamped EU rules, this paper contributes to the existing scholarship on prospectuses and considerswhat could, or should, happen to the UK’s prospectus regime following Brexit. It examines three possibilities and it advocates an ‘equivalence-plus’ approach. Specifically, it speculates that this option is most likely to guarantee the prospectus serves as a valuable investor protection device, as well as providing an attractive fundraising vehicle for firms.

Regulation of Crowdfunding in Germany

This paper is the national report for Germany prepared for the to the 20th General Congress of the International Academy of Comparative Law 2018 and gives an overview of the regulation of crowdfunding in Germany and the typical design of crowdfunding campaigns under this legal framework. After a brief survey of market data, it delineates the classification of crowdfunding transactions in German contract law and their treatment under the applicable conflict of laws regime. It then turns to the relevant rules in prudential banking regulation and capital market law. It highlights disclosure requirements that flow from both contractual obligations of the initiators of campaigns vis-a-vis contributors and securities regulation (prospectus regime). After sketching the most important duties of the parties involved in crowdfunding, the report also looks at the key features of the respective transactions’ tax treatment.

Reforming EU securities laws: the new EU Prospectus Regulation

PurposeTo analyse the changes brought about by the new EU Prospectus Regulation, which replaced the EU Prospectus Directive, which has been the cornerstone of EU securities regulation for over a decade. The Regulation is part of the EU Commission’s plans for a Capital Markets Union launched in September 2015, which is intended to achieve a true single market for capital across the EU and allow companies to access the capital markets in a more cost efficient way.Design/methodology/approachThis article discusses the key changes to the European prospectus regime included in the new EU Prospectus Regulation and highlights the changes compared to the old prospectus regime.FindingsThe new Prospectus Regulation will change current prospectus rules and practice for both equity and debt issuances in several areas and will contribute to a more uniform European prospectus regime. For EU Member States, the format of a regulation (rather than directive) that the new Prospectus Regulation has taken means that there will be much less room for divergence of prospectus rules across its member states. The Regulation’s success in making EU capital markets more uniform will depend to a great extent on whether the application of the new rules by member states’ regulators will be more consistent.Originality/valueKey EU securities law changes are explained by an experienced EU and US securities lawyer practising in London.

Remarks on the German Regulation of Crowdfunding

Crowdfunding is a buzzword that signifies a sub-set in the new forms of finance facilitated by advances in information technology usually categorized as fintech. Concerns for financial stability, investor and consumer protection, or the prevention of money laundering or funding of terrorism hinge incrementally on including the new techniques to initiate financing relationships adequately in the regulatory framework. This paper analyzes the German regulation of crowdinvesting and finds that it does not fully live up to the regulatory challenges posed by this novel form of digitized matching of supply and demand on capital markets. It should better reflect the key importance of crowdinvesting platforms, which may become critical providers of market infrastructure in the not too distant future. Moreover, platforms can play an important role in investor protection that cannot be performed by traditional disclosure regimes geared towards more seasoned issuers. Against this background, the creation of an exemption from the traditional prospectus regime seems to be a plausible policy choice. However, it needs to be complemented by an adequate regulatory stimulation of platforms’ role as gatekeepers.

Initial Public Offering: The EU Prospectus Regime

Offering shares for the first time to third-party investors is probably one of the most important decisions that can be made during the life of a company. There are a variety of reasons for listing a company in an initial public offer on regulated markets, but these generally come down to two reasons: wish of the company to raise additional equity capital, and selling stakes in the business. Becoming a public company can bring many advantages, but also is costly exercise because involves services of accountants, underwriters, additional disclosure requirements and regulatory compliance. The most important task facing the initial public offer is development of prospectus, a document that basically serves as a brochure for the company. The prospectus obligations within Europe are the subject matter of a specific piece of legislation – Prospectus Directive.

The new EU Prospectus Directive: Does it display suitable measures in order to harmonise EU securities markets?

The paper analyses the adopted version of the new EU Prospectus Directive, which overhauls the existing EU prospectus regime and is a key feature of the harmonisation of EU securities markets. The text first examines the economic dimensions of the creation of a single EU securities market and secondly displays the position of the Prospectus Directive within the system of the EU's measures in order to create a single securities market. Furthermore, the paper focuses on the reasons for the storm of protest before the adoption of the Prospectus Directive and examines the major provisions and related changes during the institutional consultations. The text finally addresses any remaining criticism of the Prospectus Directive.