| Author (Person) | Bower, Helen | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Publisher | ProQuest Information and Learning | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Title | In Focus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Details | 20.9.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Publication Date | 23/09/2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content Type | News, Overview, Topic Guide | In Focus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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According to the European Commission, companies across Europe would find it easier and cheaper to raise capital in the future if a proposal for a new Directive on prospectuses gets the go ahead. The key objective of the proposal is to introduce a single passport for issuers, which would mean that once approved by the authority in one Member State, a prospectus would then have to be accepted everywhere else in the European Union. Investor protection would be guaranteed through a set of common EU standards on the disclosure of information that would have to be met in order for a prospectus to be approved. The European Commission presented an original proposal [COM(2001)280] for a new Directive on 30 May 2001 but this provoked much controversy and so the European Commission, taking account of the European Parliament's opinion, put forward an amended proposal [COM(2002)460 final] on 9 August 2002. The proposed Directive on prospectuses forms the centrepiece of the EU's Financial Services Action Plan and is a key tool in achieving the goal of an integrated European securities market by 2003. EU leaders, meeting in Barcelona in February 2002 called for the Directive to be adopted by the end of 2002 so it will now go to the European Parliament and the Council of the European Union for negotiation. Background A prospectus is a disclosure document that provides potential investors with all the information necessary to make a correct assessment of the assets and liabilities, financial position, profit and losses, and prospects of the issuer and of the rights derived from securities being offered to the public or admitted to trading. It must be approved by a competent authority before it can be published and before procedures for placing the securities can begin. Up to now, prospectuses in the European Union have been covered by two Directives - one on listing particulars (1980/390/EC) and one specifically concerned with prospectuses (1989/298/EC). However these have been criticised by both issuers and investment banks because they have not achieved the key aim of facilitating the raising of capital across Europe's internal borders. Under the present system, mutual recognition is granted only to prospectuses that provide the information required by the Listing Particulars Directive and the host country authority is required to obtain additional information relating to the domestic market as well as translation into the host country markets. All this can make the provision of prospectuses for other countries extremely costly and burdensome. In addition, there is no European recognition system for securities falling outside the scope of the 1980/390/EC Directive. The weaknesses of the current EU regime on prospectuses coupled with the variation in practices across EU Member States means that EU capital markets remain fragmented and capital is rarely raised across different EU borders using existing prospectuses. A Single Passport for Prospectuses At the Lisbon European Council in March 2000, EU leaders discussed ways to achieve efficient and integrated financial markets, recognising the difficulties of raising capital posed by the current system on prospectuses. They concluded that in order to "accelerate completion of the internal market for financial services" a "single passport" for issuers should be developed. This would mean that there would only need to be one set of disclosure documents, approved by the home country authority (of the issuer) and accepted throughout the EU for public offer and/or admission to trading on regulated markets. The European Commission responded to the calls of the European Council by preparing a proposal for a new Directive on prospectuses that was published on 30 May 2001 (IP/01/579). The key objective of the proposed Directive would be to:
The proposed Directive would cover all types of securities normally traded in the market and to avoid loopholes and disparities in the treatment of retail investors, would introduce a standard definition of a 'public offer'. The key features of the proposed Directive are as follows:
The proposal is one of the first to follow the approach suggested by the Committee of Wise Men (chaired by Mr. Lamfalussy) in February 2001 and endorsed in a Resolution of the Stockholm European Council in March 2001. The "Lamfalussy approach" is based on differentiating framework principles from implementing measures. This means that for the proposed Directive on prospectuses all the key rules, basic concepts and principles would be laid down in the Directive and then the European Commission would adopt technical guidance and implementing measures in several specific areas after consulting Member States' representatives in a Securities Committee. These areas are:
The progress of the initial proposal through the decision-making procedure can be traced using PRELEX and OEIL. Generally, the original proposal received much criticism across Europe, especially from the financial markets. Banks and securities firms have suggested that it will raise the cost of issuing securities and remove the flexibility that issuers enjoy over when and where to sell them to investors. The International Primary Market Association, the International Securities Market Association and the Bond Market Association whose members include just about every bank and securities firm operating in the European markets accused the European Commission of not consulting wide enough. They said the proposal needed to be:
Although the associations claimed to support the idea of a single "passport" for EU companies they argued that the proposal failed to address "key issues" such as liability standards, the definition of an offer to the public, and due diligence standards. Critics also suggested that it would be smaller companies that would suffer the most with the Quoted Companies claiming that it would push up small companies' listing costs by £45,000-£100,000. The European Parliament also noted the effects that the proposed Directive was likely to have on smaller businesses at its first reading on 13 March 2002. MEPs adopted the report drafted by Christopher Huhne (ELDR, UK), which suggested a number of amendments to the European Commission's proposal. The main amendments were as follows:
Following the opinion of the European Parliament, the Council of the European Union expressed its belief that work should be pursued building on a Presidency compromise approach which:
Amended Proposal on Prospectuses In order to speed up the legislative process and meet the expectations expressed at the Barcelona Council on the early adoption of a Directive on prospectuses the European Commission decided to put forward an amended proposal for a Directive on 9 August 2002. The amended proposal [COM(2002)460 final] takes account of the Parliament's and the Council's opinions and aims to be more understandable and readable.. The main changes to the European Commission's original proposal are:
Speaking about the amended proposal, Internal Market Commissioner Frits Bolkestein said:
Initial reaction from stakeholders suggests that the latest European Commission proposal on a new Directive for prospectuses may not be much more popular than the last. The British financial sector is particularly concerned by the "maximum harmonisation" aspect of the proposal which would mean that countries could not add their own rules on top. The UK Financial Services Authority said that this could lead to lower standards for British investors. The European Federation of Securities Exchanges also claimed that there had been a lack of lack of transparency and consultation with the market on the contents of the amended Prospectus Directive. However, Chris Huhne, the MEP acting as rapportuer for the proposal, has said that the amended proposal is an "enormous improvement" and would lessen the impact on small firms raising cash on markets such as London's Alternative Investment Market (AIM). The European Parliament's economic and monetary affairs committee will hold hearings on 2 October 2002 to test the views of the EU's finance sector before deciding if the new proposals should be subject to another 'first reading' in the assembly. However, with the end of 2002 fast approaching it looks unlikely that the Barcelona European Council aim of delivering a "single passport" for issuers by 2003 will be achieved. Further information within European Sources Online:
Further information can be seen in these external links: EU Institutions Further and subsequent information on the subject of this In Focus can be found by an 'Advanced Search' in European Sources Online by inserting 'prospectus' or 'prospectuses' in the keyword field. Helen Bower According to the European Commission, companies across Europe would find it easier and cheaper to raise capital in the future if a proposal for a new Directive on prospectuses gets the go ahead. The key objective of the proposal is to introduce a single passport for issuers, which would mean that once approved by the authority in one Member State, a prospectus would then have to be accepted everywhere else in the European Union |
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| Subject Categories | Business and Industry, Internal Markets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
