Key changes for housing associations in the proposed new UK prospectus regime

Recognising the importance of maintaining stability and confidence in UK markets, the FCA plans to keep a significant level of consistency between the new and existing regimes.

However, it is proposing targeted changes aimed at reducing costs for issuers, broadening market access and enhancing the quality of information available to investors.

One of the most notable proposed changes is the relaxation of the requirement for an FCA-approved prospectus. Under the new rules, such a prospectus will only be necessary for the admission of securities to a regulated market or primary multilateral trading facilities (MTF) if the issuance size exceeds 75 per cent of the existing securities in issue, compared to the current threshold of 20 per cent.

Issuers can still choose to submit a prospectus for FCA approval voluntarily if the issuance falls below the new threshold.

Some of the changes aimed at encouraging wider participation by retail investors include:

• the reduction from six days to three days of the time period between making the prospectus available to the public and the offer ending; and
• moving away from the requirement for an FCA-approved prospectus on a primary MTF, perceived as a significant barrier due to the costs involved, where securities are available to retail investors as well as qualified investors (QIs). Instead, all initial admissions by primary MTF issuers will require an MTF admission prospectus, with the market operator taking responsibility for the detailed content and process requirements. The market operator will also retain discretion on whether to require an MTF admission prospectus for any further issuances of securities already admitted to trading on a primary MTF and for the content stipulations of supplementary prospectuses. Operators of QI-only MTFs will continue to have discretion to set their own rules.

Retail bonds

The FCA plans to conduct a separate consultation late in the fourth quarter of 2024 focused on the issuance of low denomination retail bonds, aiming to eliminate barriers and increase retail investor participation.

Proposed changes include revisions to the prescribed content and length of the prospectus summary, as well as adjustments to the requirements for supplementary prospectuses. Additionally, issuers will have the option to incorporate future financial information by reference, provided that this information is published through a regulatory information service.

To incentivise issuers to provide more detail around any forward-looking information, the FCA is introducing a new concept called ‘protected forward-looking statements’ (PFLS). These statements will be subject to a lighter statutory liability threshold.

The consultation paper outlines the criteria for a statement to qualify as a PFLS, along with the exclusions where the standard liability threshold would still apply.

There will be new disclosure requirements for sustainability-labelled debt securities, in the first instance to disclose whether their debt instruments have been marketed as ‘green’, ‘social’ or ‘sustainable’ or issued under a bond framework or a similar document. 

Where that is the case, issuers will be encouraged (but not obliged) to disclose further specified information. 

These disclosures are generally in line with best practice and include the type of information that would typically be included in the bond framework. 

New climate-related disclosure requirements are proposed in relation to issuers of equity securities but will not be applicable to issuances of debt securities. 

Nonetheless, the FCA signposts bond issuers towards the existing non-handbook technical note guidance, which clarifies expectations in relation to disclosure of relevant sustainability risks. It intends to review the guidance in due course.

Finally, a new public offer platform regime is being introduced, allowing issuers to facilitate primary offers of securities to the public without the need to publish a prospectus. This regime is expected to primarily support smaller retail investments, with further details outlined in a separate consultation paper (CP24/13).

In order for these new proposals to be as effective as possible it will be vital for housing association bond issuers to participate in the consultation as fully as possible.

The consultation period for these proposals concludes on 18 October 2024, and the FCA has said it aims to finalise the rules for the overall POATR regime by mid-2025, after which there will be an additional period before the new rules are implemented.

Rachel Orgill-Harris, partner, and Michelle Pascua, solicitor, Devonshires