The COVID-19 pandemic is severely affecting people, companies, healthcare systems and the economies of Member States. In its Communication of 27 May 2020 entitled ‘Europe’s moment: Repair and Prepare for the Next Generation’, the Commission stressed that liquidity and access to finance will be a continued challenge. It is therefore crucial to support the recovery from the severe economic shock caused by the COVID-19 pandemic by introducing targeted amendments to existing Union financial services law. Those amendments form a package of measures and are adopted under the label ‘Capital Markets Recovery Package’.
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Regulation (EU) 2017/1129 of the European Parliament and of the Council (3) lays down requirements for the drawing up, approval and distribution of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market situated or operating within a Member State. As part of the package of measures to help issuers to recover from the economic shock resulting from the COVID-19 pandemic, targeted amendments to the prospectus regime are necessary. Those amendments should enable issuers and financial intermediaries to reduce costs and free up resources for the recovery phase in the immediate aftermath of the COVID-19 pandemic. Those amendments should remain in line with the overarching objectives of Regulation (EU) 2017/1129 to foster fundraising through capital markets, ensure a high level of consumer and investor protection, drive supervisory convergence throughout the Member States, and ensure the proper functioning of the internal market. Those amendments should also specifically take full account of the extent to which the COVID-19 pandemic has affected issuers’ present situation and their future prospects.
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The COVID-19 crisis makes Union companies, in particular small and medium-sized enterprises (SMEs) and start-ups, more fragile and vulnerable. Where appropriate in order to facilitate and diversify funding sources for Union companies, with a particular focus on SMEs, including start-ups and middle-capitalisation companies, the removal of unjustified barriers and excessive administrative burden can help to promote the ability of Union companies to access equity markets, in addition to promoting more diverse, longer-term and more competitive investment opportunities for retail and large investors. In that regard, this Regulation should also aim to make it easier for potential investors to learn about investment opportunities in companies, since potential investors often have difficulty evaluating start-up companies and small firms with a short business record, a situation which leads to fewer innovative openings, especially for persons starting a business.
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Credit institutions have been active in the effort to support companies that needed financing and are expected to be a fundamental pillar of the recovery. Regulation (EU) 2017/1129 entitles credit institutions to an exemption from the obligation to publish a prospectus in the case of an offer or admission to trading on a regulated market of certain non-equity securities issued in a continuous or repeated manner up to an aggregated amount of EUR 75 million over a period of 12 months. That exemption threshold should be increased for a limited period of time in order to foster fundraising for credit institutions and give them breathing space to support their clients in the real economy. As the application of that exemption threshold is limited to the recovery phase, it should only be available for a limited period of time, ending on 31 December 2022.
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In order to swiftly address the severe economic impact of the COVID-19 pandemic, it is important to introduce measures to facilitate investments in the real economy, allow for a rapid recapitalisation of companies in the Union and enable issuers to tap into public markets at an early stage in the recovery process. In order to achieve those objectives, it is appropriate to create a new short-form prospectus to be known as the EU Recovery prospectus that, while also addressing the economic and financial issues specifically raised by the COVID-19 pandemic, is easy to produce for issuers, easy to understand for investors, particularly retail investors, who want to finance issuers, and easy to scrutinise and approve for competent authorities. The EU Recovery prospectus should be seen primarily as a facilitator of re-capitalisation, with careful monitoring by competent authorities to ensure that investor information requirements are met. Importantly, the amendments to Regulation (EU) 2017/1129 contained in this Regulation should not be used to replace the scheduled review of, and possible amendment to, Regulation (EU) 2017/1129, which would need to be accompanied by a full impact assessment. In that regard, it would not be appropriate to add additional elements to the disclosure regimes that are not already required under that Regulation or under Commission Delegated Regulation (EU) 2019/980 (4), with the exception of specific information relating to the impact of the COVID-19 pandemic. Such elements should only be introduced in the case of a legislative proposal from the Commission on the basis of its review of Regulation (EU) 2017/1129, as provided for in Article 48 of that Regulation.
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It is important to align retail investor information and key information documents across different financial products and laws, and to ensure full investment choice and comparability in the Union. In addition, consumer and retail investor protection should be considered in the foreseen review of Regulation (EU) 2017/1129 to ensure harmonised, simple and easy-to-understand information documents for all retail investors.
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Information on environmental, social and governance (ESG) matters by companies has become increasingly relevant for investors in order to measure the sustainability impact of their investments and to integrate sustainability considerations in their investment decision-making processes and risk management. Companies, as a result, face increasing pressure to respond to demands from both investors and credit institutions on ESG matters and are required to comply with multiple standards for ESG disclosures, which are often fragmented and inconsistent. Therefore, for the purpose of improving companies’ disclosure of sustainability-related information and harmonising the requirements for such disclosure provided for in Regulation (EU) 2017/1129, while also taking into account other Union financial services law, the Commission should, in the context of the review of Regulation (EU) 2017/1129, assess whether it is appropriate to integrate sustainability-related information in Regulation (EU) 2017/1129 and assess whether it is appropriate to make a legislative proposal in order to ensure coherence with sustainability objectives and the comparability of sustainability-related information across Union financial services law.
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Companies that have had shares admitted to trading on a regulated market or traded on an SME growth market continuously for at least the last 18 months before the offer of shares or admission to trading should have complied with periodic and ongoing disclosure requirements under Regulation (EU) No 596/2014 of the European Parliament and of the Council (5), Directive 2004/109/EC of the European Parliament and of the Council (6) or, for issuers on SME growth markets, under Commission Delegated Regulation (EU) 2017/565 (7). Hence, much of the required content of a prospectus will already be publicly available and investors will be trading on the basis of that information. Therefore, the EU Recovery prospectus should only be used for secondary issuances of shares. The EU Recovery prospectus should facilitate equity funding and thereby allow companies to rapidly recapitalise. The EU Recovery prospectus should not enable issuers to move from an SME growth market to a regulated market. Furthermore, the EU Recovery prospectus should only focus on essential information enabling investors to make informed investment decisions. Nevertheless, if applicable, issuers or offerors should address how the COVID-19 pandemic has affected the issuers’ business activities as well as the pandemic’s future anticipated impact on the issuers’ business activities, if any.
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In order to be an efficient tool for issuers, the EU Recovery prospectus should be a single document of a limited size, allow for incorporation by reference, and benefit from the passport for pan-European offers of shares to the public or admissions to trading on a regulated market.
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The EU Recovery prospectus should include a short-form summary as a useful source of information for investors, in particular retail investors. That summary should be set out at the beginning of the EU Recovery prospectus and should focus on key information that would enable investors to decide which offers to the public and admissions to trading of shares to study further and thereafter to review the EU Recovery prospectus as a whole in order to take their decision. The key information should include information covering specifically the business and financial impact, if any, of the COVID-19 pandemic, as well as its anticipated future impact, if any. The EU Recovery prospectus should ensure retail investor protection by adhering to the relevant provisions of Regulation (EU) 2017/1129, while avoiding excessive administrative burden. In that regard, it is essential that the summary does not diminish investor protection nor give a misleading impression to investors. Issuers or offerors should therefore ensure a high level of diligence in the drafting of that summary.
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Since the EU Recovery prospectus would provide significantly less information than a simplified prospectus under the simplified disclosure regime for secondary issuances, it should not be possible for issuers to use it for highly dilutive issuances of shares with a significant impact on the issuer’s capital structure, prospects and financial situation. The use of the EU Recovery prospectus should therefore be limited to offers comprising no more than 150 % of outstanding capital. Precise criteria for the calculation of such a threshold should be laid down in this Regulation.
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In order to collect data that supports the assessment of the EU Recovery prospectus regime, the EU Recovery prospectus should be included in the storage mechanism referred to in Article 21(6) of Regulation (EU) 2017/1129. To limit the administrative burden for changing that storage mechanism, the EU Recovery prospectus should be able to use the same data as that defined for the secondary issuance prospectus set out in Article 14 of Regulation (EU) 2017/1129, provided that the two types of prospectuses remain clearly differentiated.
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The EU Recovery prospectus should complement the other forms of prospectuses laid down in Regulation (EU) 2017/1129 in view of the specificities of different types of securities, issuers, offers and admissions. Therefore, unless explicitly stated otherwise, all references to the term ‘prospectus’ under Regulation (EU) 2017/1129 are to be understood as referring to all different forms of prospectuses, including the EU Recovery prospectus laid down in this Regulation.
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Regulation (EU) 2017/1129 requires financial intermediaries to inform investors of the possibility of a supplement being published and, under certain circumstances, to contact investors on the same day that a supplement is published. The deadline by which investors must be contacted, as well as the scope of investors to be contacted, can create difficulties for financial intermediaries. In order to provide relief and free-up resources for financial intermediaries while maintaining a high level of investor protection, a more proportionate regime should be laid down. In particular, it should be clarified that financial intermediaries should contact investors who purchase or subscribe securities at the latest at the closing of the initial offer period. The initial offer period should be understood as referring to the time period during which securities are offered to the public by the issuer or the offeror as prescribed in the prospectus and exclude subsequent periods during which securities are resold on the market. The initial offer period should encompass both primary and secondary issuances of securities. Such a regime should specify which investors should be contacted by financial intermediaries when a supplement is published and should extend the deadline by which those investors are to be contacted. Irrespective of the new regime provided for in this Regulation, the existing provisions of Regulation (EU) 2017/1129, which ensure that the supplement is accessible for all investors by requiring the publication of the supplement on a publicly available website, should continue to apply.
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As the EU Recovery prospectus regime is limited to the recovery phase, that regime should expire by 31 December 2022. In order to ensure the continuity of EU Recovery prospectuses, those EU Recovery prospectuses that have been approved before the expiration of the EU Recovery prospectus regime should benefit from a grandfathering provision.
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By 21 July 2022, the Commission is to present a report to the European Parliament and the Council on the application of Regulation (EU) 2017/1129, accompanied where appropriate by a legislative proposal. That report should assess, inter alia, whether the disclosure regime for EU Recovery prospectuses is appropriate to meet the objectives pursued by this Regulation. That assessment should address the question whether the EU Recovery prospectus strikes a proper balance between investor protection and the reduction of administrative burden.
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Directive 2004/109/EC requires issuers whose securities are admitted to trading on a regulated market situated or operating within a Member State to prepare and disclose their annual financial reports in a single electronic reporting format, starting from financial years beginning on or after 1 January 2020. That single electronic reporting format is specified in Commission Delegated Regulation (EU) 2019/815 (8). Considering that the preparation of annual financial reports using the single electronic reporting format requires the allocation of additional human and financial resources, in particular during the first year of preparation, and considering the constraints on issuers’ resources due to the COVID-19 pandemic, a Member State should be able to postpone the application of the requirement to prepare and disclose annual financial reports using the single electronic reporting format by one year. To exercise that option, a Member State should notify the Commission of its intention to allow for such postponement and its intention should be duly justified.
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Since the objectives of this Regulation, namely to introduce measures to facilitate investments in the real economy, allow for a rapid recapitalisation of companies in the Union and enable issuers to tap into public markets at an early stage in the recovery process, cannot be sufficiently achieved by the Member States but can rather, by reason of their scale and effects be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.
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Regulation (EU) 2017/1129 and Directive 2004/109/EC should therefore be amended accordingly,
