European Securities and Markets Authority publishes its Market Report on EU Prospectuses

RegCORE Client Alert | Capital Markets Union

QuickTake

On 21 December 2023, the European Securities and Markets Authority (ESMA) published its 2022 “Market Report” on EU prospectuses (the Report).Available here.Show Footnote ESMA is required to publish the Report pursuant to Article 47 of the Prospectus RegulationRegulation (EU) 2017/1129, as supplemented and amended.Show Footnote (the PR). The PR sets out the rules and requirements for the preparation, approval, and publication of prospectuses for securities offered to the public or admitted to trading on a regulated market in the EU.

The PR aims to ensure that investors have access to clear, concise, and consistent information about the securities and their issuers, and to foster market efficiency and competitiveness. The PR also grants certain exemptions and alleviations for certain types of issuers and securities, such as small to medium sized enterprises (SMEs), frequent issuers, and secondary issuances. The PR has been a core catalyst in building a harmonised rulebook governing the content, format, approval and publication of prospectuses for equity and non-equity capital markets issuances that are offered to the public or admitted to trading on in-scope trading venues.

The Report covers data for prospectuses approved as well as securities reported in 2022. Importantly, in a number of data sets, the Report excludes information for listed derivatives and asset-backed securities. As assessed in this Client Alert, the Report provides useful insight for future issuers and investors as it details the approval activity, the value of securities offered, the trends on usage of different prospectus regimes and the sanctions imposed for infringements of the PR.

The Report equally makes use of data from ESMA’s Prospectus RegisterSee here.Show Footnote which centralises prospectus documents approved by the national competent authorities (NCAs) of the European Economic Area (EEA). The Prospectus Register includes information on prospectuses approved, the related documents and securities as well as metadata on issuers and securities issued.

This Client Alert should also be read with coverage from PwC Legal’s EU RegCore on the EU’s “Listing Act” available here.

Key findings in the Report summarising market developments in 2022

The Report makes for useful reading for the private sector whether for issuers and investors alike but should also be of great interest to EU policymakers. This is particularly the case as, despite the continued aims of completing the EU’s Capital Markets Union, the number of PR relevant prospectuses approved in the EEA-30 declined by 9% in 2022 to a total of 2,425 prospectuses compared to 2,666 in 2021. The Report notes that this continues the general downward trend since the beginning of reporting in 2007 (with a total of 8,875 prospectuses approved in that year). Notably, the proportion of non-equity prospectuses increased in 2022 to 78% (up from 73% in 2021). Approval of equity security prospectuses decreased both in absolute and relative terms to 21% of the total.

The Report states that the top five jurisdictions for approving PR-relevant prospectuses were Luxembourg, Ireland, Sweden, Germany and France while the top five countries of issuers of the securities linked to approved prospectuses were Sweden, Germany, France, Czechia and Norway. A marked increase also occurred in Latvia, where 83 prospectuses were approved in 2022, up from 7 in 2021 and only 5 on average in the previous years.

The Report also assesses statistics concerning the legal domicile of the issuer and the place where the PR-relevant prospectus was approved during 2022. Within the EEA-30 the Report notes that there were 1,411 issuers in 2022, down from 1,606 in 2021. Of these, 138 or 10% were based in a non-EEA jurisdiction.  In most EEA Member States, 60% or more of the issuers are based within the country of approval – even reaching 100% in Czechia, Latvia, Poland, Bulgaria or Romania. Conversely, in Ireland and Luxembourg most prospectuses approved related to issuers based in another country (87% and 83% respectively). The Report confirms that in those countries, issuers are either based in another EEA country (53% and 72% of the total respectively) or outside the EEA (34% and 11% respectively) and that in Ireland all prospectuses approved in 2022 and 99% in Luxembourg related to non-equity securities – whereas in Sweden the share of non-equity securities was at 48%.

The total value of non-equity and equity securities (which for the Report includes shares, units in closed-ended funds, convertible securities or depository receipts) offered to the public and for which a prospectus had been drawn-up amounted to EUR 1.4 trillion in 2022, mostly in Member States with the highest number of prospectuses approved or issuers. The Report notes that the average offer size in 2022 for equity securities was EUR 127 million in the EEA-30 with ranges between below EUR 10 million in countries such as Denmark, Cyprus, Latvia, Slovakia and Hungary and up to EUR 1.4 billion in Italy. For debt securities the average consideration of offers stands at a slightly lower level, i.e., EUR 85 million in the EEA-30.

The Report also provides useful insights into the passporting of PR-relevant approved prospectuses. A significant proportion of approved prospectuses in various EEA countries are passported to other Member States. This encompasses, but is not restricted to particularly, Member States that have previously demonstrated a strong international presence, such as foreign issuers seeking clearance. In total, 773 prospectuses approved in one Member State were passported to another in 2022 (or 32% of the total). Lithuania and Latvia have the highest proportion of passported prospectuses by approving jurisdiction (25 out of 29 approved and 72 out of 83, respectively). This proportion was likewise significant in Germany (159 prospectuses) and Austria (47), where this number of passported-out prospectuses accounted for 77% of the total. Passported prospectuses continued to be notable in Luxembourg (227, or 46% of the total approved there in 2022), and Ireland (95, or 27% of the total).

The Report also analyses the take-up of the different streamlined regimes for (i) SMEs (EU Growth prospectus), (ii) secondary issuances (simplified disclosure regime for secondary issuances) and (iii) frequent issuers (universal registration document, or URD) as well as (iv) the simplified EU Recovery Prospectus that was introduced as part of the Capital Markets Recovery Package (CMRP) to mitigate the economic impact of the COVID-19 pandemic.

According to the Report’s findings, the adoption of the EU Growth prospectus remained limited, with 209 (down from 227 in 2021) prospectuses approved in 2022, accounting for 9% of the total. The majority of these prospectuses relate to equity securities as well as SME issuers and were concentrated in a few countries, notably Sweden (53% of issuances), Czechia (14%), Germany and Romania (both 6%) and France (5%) – the remaining EEA-30 Member States accounted for the remaining 16%.

The usage of the simplified disclosure regime for secondary issuances also continued to be low during the period covered by the Report, with 154 prospectuses approved in 2022, mostly for equity securities. The simplified disclosure regime was mainly used by issuers in Sweden, Norway, France and Germany.

The Report states that the URD regime, which allows frequent issuers to benefit from a fast-track approval procedure, was used by 28 issuers in 2022 (down from 36 in 2021 and 56 in 2020). The URD regime was only used in a few Member States in 2022 with 19 URDs approved in France, five in Spain, three in Iceland, two in the Netherlands and one each in Belgium and Bulgaria during 2022.

The Report found that the EU Recovery Prospectus regime, which was intended as a temporary measure to facilitate recapitalisation during the post-COVID-19 recovery phase, had a very limited uptake, with only 23 prospectuses approved in 2022 (up from 16 in 2021), representing around 1% of the total in the first two years of the regime’s operation. The regime was only available for secondary offerings of shares and for companies that have a proven track record in public equity markets and was used mostly by issuers in Germany (24%), Italy (15%), Greece (13%), Belgium, Finland and Portugal (all 8%) with the remaining EEA-30 countries accounting for 24% of all approvals in this segment over the past two years combined. The Report notes that the EU Recovery Prospectus regime’s restricted scope appear to be the main reasons for its limited adoption overall.

The Report also provides information on the sanctions imposed by NCAs for infringements of the PR.  In 2022 a total of 40 administrative sanctions and other administrative measures were issued across five Member States (Austria, Belgium, Czechia, Germany and Norway) for a total of EUR 244,403, thus a higher number of sanctions, but at a lower monetary amount compared to 2021.

The Report concludes with a statistical annex that includes additional indicators based on data from the Prospectus Register at prospectus, document and security level. The Report also indicates that future editions will aim to include more information contained in prospectuses that are not covered in the 2023 version, such as the destination of passported prospectuses, more risk indicators, and potential further revisions of data and methods.

While the Report highlights useful data and some key areas for improvement, it remains to be seen whether ESMA or indeed the EU’s co-legislators will look to adjust this regime to make it more attractive. Any likely legislative and/or regulatory rulemaking efforts to improve the status quo and to so deliver on the core objective of Capital Markets Union i.e., to create more integrated, more liquid and a better-functioning pan-EU capital market across the EU-27 will likely only occur well after the European Parliament elections in June 2024 and the new European Commission’s commencement of its next term through to 2029. Nevertheless, there are a number of areas that have already long been identified, many of which pre-date the PR replacing the previous Prospectus Directive regime) as ripe for improvement by ESMA as well as market participants alike that should be taken note of.

Improving the amount of approvals of PR relevant prospectuses

If Capital Markets Union is to become a success and if markets-based financing is to grow in the EU as opposed to the current continued preferred reliance on bank-intermediated financing, then there are a number of items that the EU’s policymakers and market participants will need to consider in 2024 and beyond. Specifically, to improve the amount of approvals for PR relevant prospectuses, issuers and their advisers may want to consider the following ideas:

1. Use the proportionate disclosure regime (PDR) where applicable.The PDR is set out in Articles 14 to 18 of the PR and further specified in Commission Delegated Regulation (EU) 2019/980 and Commission Delegated Regulation (EU) 2019/979.Show Footnote The PDR allows for reduced disclosure requirements for certain types of issuers and securities, such as SMEs, credit institutions, secondary issuances, and rights issues. The PDR aims to reduce the administrative burden and costs for issuers, while maintaining an adequate level of investor protection. Issuers should check with their legal and capital markets advisors whether they qualify for the PDR and follow the relevant schedules and building blocks for the content and format of their prospectuses.
2. Use the URD where possible.The URD is set out in Articles 9 to 13 of the PR and further specified in Commission Delegated Regulation (EU) 2019/980 and Commission Delegated Regulation (EU) 2019/979.Show Footnote The URD is a registration document that contains general and financial information about the issuer and its business, and that can be used as a constituent part of a prospectus or as a standalone document for frequent issuers. The URD aims to facilitate access to capital markets and to streamline the approval process for issuers that regularly offer securities to the public or admit them to trading. Issuers should consider whether they can benefit from the URD and follow the relevant schedules and building blocks for the content and format of their URDs.
3. Follow the ESMA guidelines and Q&As on prospectuses. ESMA continues to issue various guidelines and Q&As on the interpretation and application of the PR and the delegated and implementing acts, regulations, and guidelines. These documents provide clarifications, examples, and best practices on various aspects of the PR regime, such as rules on the risk factors, the summary, the financial information, the disclosure of alternative performance measures, the incorporation by reference, and the scrutiny and approval process by listing authorities. Certain issuers and their advisers may wish to refresh their understanding of the ESMA guidelines and Q&As on prospectuses and ensure that their prospectuses are consistent with them.
4. Engage with the respective NCA early and proactively. Some NCAs may provide pre-filing meetings, guidance, feedback, and comments on draft prospectuses, depending on its resources and policies. Issuers and their advisers should engage with the NCA as early as possible and throughout the approval process and respond to any requests or queries promptly and comprehensively. Issuers and their advisers should also inform the NCA of any material changes or developments that may affect the prospectus or the approval process.

Other reform options, many of which have long predated the introduction of the current PR-regime, include (re-)assessing the NCAs roles as listing authorities. While EU-27 and EEA-30 listing authorities cooperate with one another and equally with ESMA, so as to ensure consistent and effective application of EU rule and to exchange information and assistance, the current framework remains at times, somewhat fragmented, inconsistent and inefficient – notably in cross-border situations. 

Several reform proposals have been put forward by various stakeholders, the European Commission, the European Parliament, various industry associations as well as ESMA to date. These proposals aim to address the challenges and gaps in the existing system and some have already become on-going efforts, aiming to enhance the harmonisation, coordination, and supervision of the EU listing authorities, and to improve the transparency, accountability and enforcement of the EU disclosure rules. The main reform proposals and on-going efforts for EU listing authority cooperation can be summarised as follows:

• Further enhancing the harmonisation and simplification of the EU disclosure rules and procedures. This could include further streamlining the notification and passporting mechanisms for cross-border offerings and admissions beyond the targeted amendments to date as well as revising and consolidating the EU’s Transparency Directive, as amended,Directive 2004/109/EC as amended in 2013 by the Transparency Directive Amending Directive 2013/50/EU which improves the harmonisation of periodic and on-going information duties of issuers, whose securities are listed on a regulated market with the EU and further market participants. As set out in coverage from our EU RegCORE, On 3 March 2021, ESMA published its letter of 26 February 2021 to the European Commission proposing improvements to the Transparency Directive in the wake of the Wirecard case. In ESMA's view, the case underlines the importance of timely and effective financial information enforcement in ensuring investor protection and confidence in capital markets. ESMA recommended that the European Commission consider modifications to the Transparency Directive to: (i) enhance cooperation between NCAs and other authorities; (ii) enhance the coordination of financial information enforcement at a national level; (iii) strengthen the independence of NCAs; and (iv) strengthen the harmonised coordination of information across the EU.Show Footnote and the PR into a single EU regulation, aligning the definitions and scope of the disclosure obligations and reducing the duplication and complexity of the reporting requirements. One move on this proposal that is already underway is the aim to create an EU Single Access Point (ESAP) to offer EU-wide access to information on activities or products provided by entities when such information relates to capital markets, financial services or sustainable finance. As discussed in a separate Client Alert, on 20 December 2023 the ESAP regulation along with the ESAP Omnibus Regulation and ESAP Omnibus Directive were published in the EU’s Official Journal and entered into force 20 days following publication. Member States have until 10 January 2026 to transpose the ESAP Omnibus Directive into national law, except for Article 3 (which relates to the Transparency Directive) which has a deadline of 10 July 2025.
• Improving the transparency and accountability of the EU listing authorities and the issuers. This could include requiring the EU listing authorities to publish more information on their activities, decisions, and performance and to report regularly to ESMA and the public. It could also involve enhancing the disclosure standards and quality for the issuers, and requiring them to provide more relevant, reliable, and comparable information to the investors and the market.
• Increasing the enforcement and cooperation of the EU listing authorities and ESMA. This could include developing a more common framework and methodology for the supervision and review of the issuers' disclosures and establishing a common set of sanctions and measures for breaches of the disclosure obligations. It could also involve further enhancing the information exchange and assistance among the EU listing authorities and ESMA and facilitating the cross-border recognition and execution of the supervisory and enforcement actions.
• Strengthening the role and powers of ESMA further as a central coordinator and supervisor of the EU listing authorities. This could include granting ESMA more defined and direct supervisory powers over certain issuers or categories of securities, such as third-country issuers, ESG-related disclosures or critical benchmarks beyond the current achievements to date. It could also involve giving ESMA more authority than is currently the case to issue binding guidelines, opinions, and decisions, to conduct peer reviews and investigations, and to impose sanctions and measures on non-compliant issuers or NCAs beyond what is currently in place. While the first steps in this direction have already been achieved by legislative and regulatory rulemaking means, more centralisation could ensure that the Single Rulebook is backed by a true single supervisory culture. 
• Establishing a single EU listing authority or a network of EU listing authorities to replace or complement the current system of NCAs. Going a step further to the above, this could entail creating a new EU agency or body as part of ESMA that would be responsible for approving prospectuses, reviewing periodic reports, and enforcing the disclosure obligations for all issuers admitted to trading on EU regulated markets. Alternatively, it could involve designating one or more NCAs as EU listing authorities for specific securities or sectors and requiring them to cooperate and share information with each other and with ESMA.

Whether all of these reforms will be achieved remains to be seen, but how to improve PR compliance remains a central effort of ESMA. 

Outlook

The EU’s Capital Markets Union efforts remain an indispensable priority to the success of the EU’s Single Market for financial services but also for the real economy and growth. Reducing the (unintended) barriers in the PR-regime and ensuring the EU’s trading venues remain a compelling choice for nascent and seasoned issuers as well as institutional through to retail investors remains crucial.

The next European Commission, working together with the co-legislators, ESMA and the entire body of the current make-up of the European System of Financial Supervision will need to push forward to “close the gap” that the EU has versus policymakers’ preferred benchmark of U.S. capital markets. Ensuring the PR-regime is an enabler and that future editions of ESMA’s Report show a positive trend in statistics is just one of the tools for improvement. However, as explored in other Client Alerts, EU policymakers are looking at other catalysts such as the Retail Investor Package as well as possible improvements to the current levels of coverage as set out in the EU’s Investor Compensation Scheme Directive, which compared to the US remain underwhelming at best. ESAP may also have a role to play in ensuring greater access to and confidence in respective capital markets data both for issuers and investors alike.

For the immediate short-term future, both existing and new issuers will want to take note of how to best approach where and on what basis they conduct their capital markets issuances and how these are documented. This is particularly the case as financial markets and participants will need to navigate through a continued backdrop of tight(er) monetary policy, stubborn inflation and mixed economic data.

About us

PwC Legal is assisting a number of financial services firms and capital markets participants in forward planning for changes stemming from relevant related developments. We have assembled a multi-disciplinary and multijurisdictional team of sector experts to support clients navigate challenges and seize opportunities as well as to proactively engage with their market stakeholders and regulators. PwC Legal, working together with PwC has more than 150 capital markets multi-jurisdictional qualified lawyers and numerous multi-disciplinary capital markets focused professionals advising issuers and investors across the EEA-30. 

Moreover, we have developed a number of RegTech and SupTech tools for supervised firms, including PwC Legal’s Rule Scanner tool, backed by a trusted set of managed solutions from PwC Legal Business Solutions, allowing for horizon scanning and risk mapping of all legislative and regulatory developments as well as sanctions and fines from more than 1,500 legislative and regulatory policymakers and other industry voices in over 170 jurisdictions impacting financial services firms and their business, in particular as it impacts capital markets activity across all asset classes and transaction types.  

In leveraging our Rule Scanner technology, we offer a further solution for clients to digitise financial services firms’ relevant internal policies and procedures, create a comprehensive documentation inventory with an established documentation hierarchy and embedded glossary that has version control over a defined backward plus forward looking timeline to be able to ensure changes in one policy are carried through over to other policy and procedure documents, critical path dependencies are mapped and legislative and regulatory developments are flagged where these may require actions to be taken in such policies and procedures.   

If you would like to discuss any of the developments mentioned above, or how they may affect your business more generally, please contact any of our key contacts or PwC Legal’s RegCORE Team via de_regcore@pwc.com or our website.