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ESMA publishes today the second part of its final advice (ESMA/2012/137) on possible delegated acts for the Prospectus Directive (PD). The advice was submitted to the Commission on 29 February 2012. In its advice, ESMA proposes how to use a prospectus in a retail cascade and provides input on how to review the provisions of the Prospectus Regulation concerning tax information, indices, auditor’s report on profit forecasts and estimates and audited historical financial information. Today’s advice follows a public con-sultation started on 13 December 2011.
Overall, the technical advice aims to achieve a high-level of investor protection and to increase across Europe the legal clarity and efficiency of the prospectus regime. Investment prospectuses as such are aimed to provide investors with easily accessible information on financial products so as to foster in-formed decision-making.
Increased transparency in retail cascades
ESMA observed that there is no uniform model of retail cascades within the European financial markets and therefore concludes, with a view to increase transparency, legal certainty, investor protection and the supervisory needs of competent authorities, that the consent to use a prospectus needs to be included in the prospectus or base prospectus/final terms.
In order to take into account the current market practices where the issuer’s ability to identify all financial intermediaries in the prospectus or final terms might be limited, ESMA proposes a two type consent approach, setting out principles which need to be respected by issuers or persons responsible for the drawing up the prospectus and financial intermediaries, as well as specifying the minimum content of the general consent and any conditions attached thereto.
Provisions for issues such as tax regime, indices, and auditor’s report should be reviewed
Tax regime: As investors may be deprived of tax information in certain jurisdictions where an issuer is actively making a public offer, ESMA proposes to keep the current requirement of the PD but revise its FAQ to reflect that such information shall be included in the prospectus.
Indices: ESMA is of the view that, among all indices, there is a clear conflict of interest in the case of pro-prietary indices. Although disclosure on conflicts of interest is already required, a description of the index in the prospectus would provide additional transparency on the issue, ensure that the respective compe-tent authorities have the possibility to scrutinize the description and ensure comprehensibility of the prospectus. The description is required if the index is composed by the issuer and/or any entity belonging to the same group as the issuer.
Auditor’s report on profit forecasts and estimates: ESMA proposes to keep the current require-ment of an auditor’s report on profit forecasts and estimates as it believes that reports prepared by inde-pendent accountants or auditors provide investors with confidence in and ensures a certain quality of the profit forecasts or estimates being prepared on the basis of the underlying assumptions.
Audited historical financial information: ESMA proposes to keep the current regime of including three years of audited historical financial information. A reduction of the disclosure requirement would result in less extensive information on which an investor can base the relevant investment decision.
Background and next steps
On 20 January 2011, ESMA received a mandate from the Commission to provide technical advice on possible delegated acts concerning the PD as amended by the Amending Prospectus Directive. The Man-date was split into three parts as regards the prioritisation of work and delivery of the technical advice. The first part was delivered on 4 October 2011.
ESMA will start the work on the remaining part of the mandate which covers a comparative table re-cording the liability regimes applied by the Member States; the work on equivalence of third-country financial markets is postponed due to the on-going review of the Transparency, Market Abuse and MiFID. Finally, the disclosure requirements for convertible bonds will be dealt with under the same technical advice (Part III of the Mandate).
With regards to the areas covered by the ESMA provided on 29 February, the Commission is due to adopt the delegated acts by 1 July 2012.
