The European Association of co-operative Banks (EACB) welcomes the Commission’s proposal to review the Prospectus Regime as an important step to building a Capital Markets Union. The EACB strongly supports the objectives of the proposal to improve certain requirements in order to alleviate the burden for companies which draw up a prospectus (especially SMEs) and to make the prospectus a more valuable information tool for potential investors. At the same time, further alignment of the prospectus rules with other EU disclosure rules (e.g. the Transparency Directive and the Regulation on key information documents for packaged retail and insurance-based investment products (PRIIPs)) could indeed enhance the efficiency of the prospectus. Indeed, the members of EACB consider that the draft Prospectus Regulation will create a more efficient framework and contribute to a more coherent approach across the European Union.
However, we consider that some further improvements would be desirable to make it easier for firms to fulfil their administrative obligations, but in a way that investors are still well informed about the products they are investing in. To name a few:
- Some further improvements could be envisaged with regard to the scope and the relevant thresholds. For example the threshold for small credit institutions Article 1(2) i) should be increased. The fact that credit institutions, unlike other issuers, are subject to prudential supervision and several disclosure requirements about financial data, balance sheet and risk policies already widely available to the public should be taken into account. Another example would concern the re-insertion of the wholesale exemption. We fear that removal of this exemption will negatively affect the efficient operation of the EU wholesale markets for debt securities – which currently function well- by eliminating the lasting separation from the retail markets provided by this exemption.
- Moreover, certain provisions such as those regarding the Universal Registration Document (Article 9) and the minimum disclosure regime for secondary issuance (Article 14) should not be limited to listed companies. Indeed, there should be no discrimination with regard to the legal form of the issuer, but the relevant provisions should be applicable to all capital market-oriented entities irrespective the condition of listed company, such as co-operative banks.
- In addition, the EACB agrees with the objective of preventing lengthy, incomprehensible risk factor sections in prospectuses. However, prescribing under Article 16 of the proposal that risk factors need to be allocated across a maximum of three distinct categories according to their materiality is not neither suitable nor appropriate to address the issue, as risk factors do not become any shorter or more readable simply because they are sorted into two or three categories. Establishing two or even three different categories forces issuers to draw an artificial line between different risk factors that may not be far apart from each other in terms of materiality. The categorisation can be a subjective exercise , or have a debateable outcome, as there will always be grey areas. Limiting the risks and highlighting selected risks could give the impression to investors of fewer risks than actually potentially occurring or lead them to focus on only few of them.
- Some further improvements could be envisaged to the summary of the prospectus and the base prospectus and the universal registration document.
These and some other concerns regarding the EC proposal for a Prospectus Regulation are elaborated in the EACB position paper.
For further information on this topic or to read the EACB response, please download the PDF.