Prospectus (Amendment etc.) (EU Exit) Regulations 2019

Baroness Bowles of Berkhamsted Excerpts

Wednesday 16th October 2019 Grand Committee

[Lord Bethell (Con)]

My Lords, the Government have previously made all necessary legislation under the EU withdrawal Act to ensure that, in the event of a no-deal exit on 29 March 2019, there was a functioning legal and regulatory regime for financial services from exit day. Following the extension to the Article 50 process, new EU legislation has become applicable. Under the EU withdrawal Act, this legislation will form part of UK law at exit. Additional deficiency fixes are therefore necessary to ensure that the UK’s regulatory regime remains prepared for exit.

This instrument amends the EU prospectus regulation and related legislation, including a previous EU exit instrument—the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019, or the official listing instrument. That instrument, which was debated back in February, fixed deficiencies in the EU prospectus regime prior to 29 March 2019. However, on 21 July 2019, the new EU prospectus regulation applied in full across the EU, replacing the existing regime.

The EU prospectus regulation contains the standardised rules that govern the format, content, approval and distribution of the prospectus that issuers may need to produce when securities are offered to the public or admitted to trading on a regulated market in an EEA state. Deficiency fixes to the new EU prospectus regulation are necessary to reflect that, after exit, the UK will be outside the EU single market and the EU’s regulatory and supervisory framework for financial services. Where appropriate, the amendments in the instrument follow the same approach as the prior amendments made in the official listing instrument to the UK prospectus regime. Overall, this instrument will ensure that the UK will continue to have an effective prospectus regime after exit.

First, after exit, EEA issuers wishing to access the UK market will be required to have their prospectus, or their registration document, approved directly by the Financial Conduct Authority, as any other third-country issuer would. Currently, an EEA issuer’s prospectus or registration document can be passported for use in the UK once it has been approved by an EEA regulator. To provide continuity, this instrument introduces transitional arrangements that will allow a prospectus approved by an EEA regulator and passported into the UK before exit to continue to be used and to be supplemented with additional information until the end of its normal period of validity.

Similarly, the instrument permits registration documents—the part of the prospectus that contains information on the issuer—that are passported into the UK before exit to continue to be used as a constituent part of a full prospectus in the UK. However, the full prospectus will still require FCA approval after exit. For both a full prospectus and a registration document, the period of validity is usually 12 months after it was originally approved. I should stress that the Government have worked very closely with the FCA in preparing this instrument. The FCA is confident that it has the appropriate level of resource to manage its responsibilities, including the approval of prospectuses as of exit day.

Secondly, the exemption for certain public bodies from the obligation to produce a prospectus under the EU prospectus regulation is maintained but is extended to the same set of public sector bodies of all third parties after exit. This exemption is limited to certain types of securities issued principally by Governments, central banks, local or regional authorities of a third country and public international bodies of which a third country is a member, such as the Nordic Investment Bank. This approach is in line with the approach previously taken in the official listing instrument. Noble Lords will remember that this issue was deliberated during the debate on that instrument in February and, as then, while this is a change from the current limitation to EEA states only, I believe it makes sense to extend this exemption more broadly. This will ensure UK capital markets continue to be attractive to public body issuers, which have historically raised substantial volumes of capital in the UK. We estimate that in 2016 and 2017 at least $84 billion was raised by public bodies making use of this exemption.

It is also important to remember that the EU prospectus regulation is not the only protection in place for those looking to invest in securities. Most significantly, the marketing and promotion of securities will remain subject to the financial promotion restrictions set out in the Financial Services and Markets Act and overseen by the FCA. The EU prospectus regulation allows issuers to incorporate information from certain documents that are available electronically elsewhere by making reference to them in a prospectus. This includes documents approved by the regulator of another EEA state. To provide continuity for market participants, this instrument sets out that information contained in the relevant documents approved by an EEA regulator before exit day can continue to be incorporated by reference in a UK prospectus going forward. However, the FCA will still need to approve any prospectus that incorporates information in this way before it can be used in the UK.

Lastly, this instrument ensures that matters in relation to the UK prospectus regime and transparency framework will continue to apply to Gibraltar, as they did prior to the UK’s departure from the EU. This is in line with the approach taken in other EU exit instruments.

As with all our EU exit legislation on financial services, the usual consultation process has not been used. It would have been unfeasible in the time available to prepare for exit. Nevertheless, the Treasury has engaged extensively with the financial services industry, particularly through TheCityUK, to develop our exit legislation, including this instrument. TheCityUK was supportive of the approach taken and helped to improve the clarity of the instrument.

Before I conclude, I want to address the procedure under which this instrument has been made. It, along with three other financial services exit instruments, were made and laid before Parliament on 5 September under the made-affirmative procedure provided for in the EU withdrawal Act. As described earlier, this is an urgent procedure which brings an affirmative instrument into law immediately, before Parliament has considered the legislation, but the procedure also requires that Parliament must consider and approve a made-affirmative instrument if it is to remain law. The Government have not used this procedure lightly but, as we draw near to exit day, it is vital that we have critical exit legislation in place. It would have been inappropriate to leave this until the last minute. Industry and our financial regulators want legal certainty on the regime that will apply from exit.

In summary, this Government believe that the proposed legislation is necessary to ensure that the UK’s prospectus regime can continue to function appropriately post-exit if the UK leaves the EU without a deal. I hope that noble Lords will join me in supporting these regulations, which I commend to the Committee.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the Minister for his introduction to the statutory instrument and also for his previous email contacts. As has been said, the delay to Brexit has brought another EU regulation into scope and, given that it is a regulation, it is already directly applicable. As usual I must declare my interests as in the register and especially as a director of the London Stock Exchange. I think that prospectuses are slightly relevant there.

All the usual concerns that have been voiced previously, often by the noble Lord, Lord Tunnicliffe, and my noble friend Lady Kramer, as well as me, about the complexity of following the state of play of our UK legislation apply. In statutory instruments such as this, which is a second round of amendments, they seem to bear more heavily than usual. It is rather unfortunate that the word “regulation” applies at so many different levels. It is easy, even for someone like me, to wonder which regulation it is: is it the EU regulation, is it one of the regulations that we have done for Brexit, or is it an individual regulation within a set of regulations? That is not helpful, but there is not a lot we can do about it, other than choose a new name.