New prospectus regulations offer good news for SMEs seeking to raise capital

August 7, 2018

For SMEs looking to raise capital, and the funding platforms that support them, The Financial Services and Markets Act 2000 (Prospectus and Markets in Financial Instruments) Regulations 2018 provides welcome news.

In this note, we take a look at some of the changes (which took effect on 21 July 2018) and what they mean for SMEs seeking to raise debt and equity capital.

Background

Under section 85(1) of the Financial Services and Markets Act 2000 (“FSMA”) it is unlawful for transferable securities to be offered to the public in the United Kingdom unless an approved prospectus has been made available to the public before the offer is made.

Exempt offers

Where there is an offer of transferable securities to the public in the EEA, there is now an exemption from the requirement to publish a prospectus where the total consideration of each offer does not exceed €8,000,000 over a 12 month period (section 86(1)(e) FSMA). The previous threshold was €100,000 (although most issuers relied on an alternative exclusion where the threshold was previously €5,000,000).

What does this mean in practice?

This change means that the regulatory burden on businesses looking to raise small to medium amounts of debt and equity capital is reduced, as they will not need to publish a prospectus in relation to an offer below €8,000,000. Businesses should note that this is a ‘per year’ amount, and so quite significant sums could be raised over a relatively short period.

Other points to consider

It should be noted that EU member states have the discretion to implement this threshold between €1,000,000 to €8,000,000. Companies looking to undertake a cross-border capital raise should bear this in mind, as depending on the total consideration for the offer, the prospectus requirement may apply if the offer is extended to an EU member state in which the threshold is lower than the UK threshold, and the offer exceeds that local threshold. If the offer is only in the UK, this is not a concern.


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