_Regulation 2017/1129/EU of the European Parliament and of the Council of 14 June 2017, on the prospectus to be published when securities are offered to the public, or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (the ‘Regulation’), officially became effective on 20 July 2017.
Direct applicability in the EU Member States
The Regulation is directly applicable in the EU Member States, and gradually supersedes Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading (amending Directive 2001/34/EC), as well as the national transposition laws. With regard to Luxembourg, the Regulation affects the law on prospectuses for securities of 10 July 2005 (the ‘Prospectus Law’).
It can be expected that the European capital market will be governed by a single Regulation in the future; national differences will be permitted only on a minimum scale according to the Regulation.
This Regulation constitutes an essential step towards the completion of the Capital Markets Union, as set out in the Communication of the Commission of 30 September 2015, entitled ‘Action Plan on Building a Capital Markets Union’. The aim of the Capital Markets Union is to help businesses tap into more diverse sources of financing from anywhere within the European Union, make markets trade more efficiently and offer investors and savers additional opportunities to put their money to work, in order to enhance growth and create jobs.
Significant changes, in comparison with the Directive 2003/71/EC and the Prospectus Law, include inter alia the simplified prospectus requirements for secondary issuances and small and medium-sized enterprises (‘SMEs’).These changes will be achieved via the introduction of the EU Growth prospectus, a brand new type of prospectus, primarily for SMEs, for which a specific registration document and a standardised format is provided. Furthermore, the conditions set out for frequent issuers will be improved by reducing the period of time required for the application by the introduction of a universal registration document, which must be submitted to the relevant authority. This registration document includes information regarding the legal, business, financial, accounting, future prospects, management and shareholder participation of the enterprise. In addition, the presentation of the risk factors has been reviewed, so as to include only the significant risk factors with regard to investment decisions.
Moreover, the summaries in the prospectuses have been simplified. The overall number of risk factors regarding the issuers and the securities, as well as possible guarantors, contained in the summary cannot exceed 15. The summary is now limited to a total of seven A4 pages. Ultimately, the prospectus summary shall as much as possible bear the appearance of the pattern set out in Regulation 1286/2014/EU of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products, with regard to the key information document; if securities should be governed by both regulatory areas, the contents can broadly be reused in order to reduce costs.
Further changes and ratione temporis
Although, as previously mentioned, the Regulation has already become effective, it is not fully applicable until 21 July 2019.
As of 20 July 2017, only three provisions with regard to the exemptions from the obligation to draw up and publish a prospectus have become effective. According to these exemptions, there is no obligation to publish a prospectus for the admission to trade on a regulated market for the following:
- Securities fungible with securities already admitted to trading on the same regulated market, provided that, over a period of 12 months, they represent less than 20% of the number of securities already admitted to trading on the same regulated market (according to Directive 2003/71/EC and the Prospectus Law, an upper limit of 10% existed);
- Shares resulting from the conversion or exchange of other securities or from the exercise of the rights conferred by other securities, where the resulting shares are of the same class as the shares already admitted to trading on the same regulated market, provided that, over a period of 12 months, the resulting shares represent less than 20% of the number of shares of the same class already admitted to trading on the same regulated market, subject to the second subparagraph of this paragraph (according to Directive 2003/71/EC and the Prospectus Law, an upper limit of 20% has not existed);
- Securities resulting from the conversion or exchange of other securities, own funds or eligible liabilities by a resolution authority, due to the exercise of relevant power relating to the Regulation of the European Parliament and of the Council of 15 May 2014 for the establishment of a framework for the restructuring and transaction of credit institutions and investment firms and resulting in the amendment of Directive 82/891/EEC, Directives 2001/24/EC, 2002/47/EC 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EC, 2012/30/EC and 2013/36/EC, as well as Regulations 1093/2010 and 648/2012 of the European Parliament and of the Council (which has not yet been organised by Directive 2003/71/EC or the Prospectus Law).
Additional provisions will come into force on 21 June 2018, pursuant to which a minimum level of offering volume will be determined, which will set forth as of when a prospectus must be published (basically, EUR 1,000,000 over 12 months, Member States can raise the minimum limit up to EUR 8,000,000).
Since the Prospectus Law and Directive 2003/71/EC coexist at the current time, it should be noted that the Prospectus Law will no longer be applicable, in so far as the exemptions mentioned above are broader or vary from the Prospectus Law. The European law is predominant.
Nevertheless, it should be noted that prospectuses approved in accordance with the national laws before 21 July 2019 shall continue to be governed by national law; therefore, in Luxembourg, underlying the Prospectus Law, until the end of their validity, or until 12 months have elapsed after 21 July 2019, whichever occurs first.
No amended specific conditions for the fund industry
The Luxembourg fund industry must adapt to the Regulation and the changes mentioned above, but it is not fundamentally affected by any specific divergences from the current legal situation.
Neither the Prospectus Law nor the Regulation provide an obligation for the drawing up of a prospectus, if share certificates for collective investments, other than for closed-end type structures, are issued. Structures for collective investments, other than closed-end types, are unit trusts and investment companies, which both feature the following properties:
- they raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors;
- at the holder’s request, their units are repurchased or redeemed, directly or indirectly, out of their assets.
The following exceptions in particular apply to Luxembourg specialised investment funds, which are not obliged to publish a prospectus for the following types of offers of securities:
- an offer of securities, pursuant to the Regulation, addressed solely to qualified investors;
- an offer of securities addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors;
- an offer of securities with a denomination per unit that amounts to at least EUR 100,000;
- an offer of securities addressed to investors who acquire securities for a total consideration of at least EUR 100,000 per investor, for each separate offer.
If none of the exceptions mentioned above occurs, and if it falls within the scope of application of the Regulation, the drawing up of a prospectus is mandatory.
With regard to specialised investment funds, the provisions of the law of 13 February 2007 should remain valid (although the wording still requires adjustment). There is no longer an obligation to draw up a prospectus if it has already been published pursuant to the Prospectus Law or the Regulation.
The European Commission must still enact level 2 measures for the Regulation in order for it to become fully applicable on 21 July 2019, and the Luxembourg legislator must still review certain areas, for example, the responsibilities assigned to the relevant authorities or the sanctions in case of non-compliance. The European Securities and Markets Authority is also tasked with developing regulatory technical standards.
It can be noted that:
- the European capital market will be governed by a single Regulation in the future, national differences will be permitted only on a minimum scale according to the Regulation;
- the Prospectus Law will no longer be applicable, in so far as the exemptions mentioned above are broader or vary from the Prospectus Law. The European law is predominant;
- the Luxembourg fund industry must adapt to the Regulation and the changes mentioned above, but is not fundamentally affected by any specific divergences from the current legal situation.
 On 8 June 2017, the European Commission published a mid-term review of the capital markets union action plan, setting out which measures have already been taken and which remain to be taken (https://ec.europa.eu/info/publications/mid-term-review-capital-markets-union-action-plan_en).