ESMA to have new powers to approve prospectuses and investigate market abuse
The European Commission is consulting on a package of proposals aimed at further integrating the supervision of EU capital markets. Among other things these proposals will give a greater role to the European Securities and Markets Authority in relation to the approval of prospectuses and the investigation of market abuse.
These measures have been designed to achieve further harmonisation in EU capital markets, leading to a true single market. The consultation also cites reducing opportunities for regulatory arbitrage and by-passing the rules as reasons behind the proposals.
The Commission is hopeful that the final text of the proposed Regulation will be adopted by March 2019 and apply from two years later. However, under the current proposals, the changes to the approval of prospectuses will not apply until three years after adoption, in 2022. Based on the current timetable for Brexit these changes will therefore probably not affect the approval of prospectuses for listings or offerings of securities in the UK, but would affect listings or offerings by UK companies in EU Member States.
Approval of prospectuses
The proposals envisage that ESMA will itself be responsible for approving all prospectuses drawn up by non-EU issuers when listing or carrying out a public offering of securities within the EU. This means that prospectuses drawn up under EU rules by UK issuers, after the UK has left the EU, will need to be approved by ESMA, rather than a National Competent Authority.
In addition, certain prospectuses drawn up by EU issuers would also be approved by ESMA, rather than national competent authorities. These include prospectuses:
- for certain wholesale non-equity securities;
- relating to asset-backed securities; and
- drawn up by specialist issuers such as property companies, mineral companies, scientific research-based companies and shipping companies.
Under the proposals, ESMA will be a “investigatory hub” for market abuse cases with a cross-border element. It will have the power to recommend that competent authorities initiate investigations and will facilitate the exchange of relevant information (a data storage facility will be maintained for this purpose). ESMA will act where certain orders, transactions or behaviours lead to a “well-founded suspicion and have cross-border implications or effects for the integrity of the financial markets or financial stability in the EU”.
The proposals also address a large number of other areas, including:
the development of regulation for FinTech;
extending the supervisory powers of European Supervisory Authorities;
amendments to the Benchmarks Regulation, MiFID II and MiFIR and Solvency II; and
ESMA taking responsibility for regulation of data reporting service providers.
Some of the changes proposed clearly show the influence of Brexit. Increasing the powers of ESMA, at the expense of national competent authorities, will be much easier to achieve without the dominant UK market being part of the EU. There are also provisions for ESMA to crack down on excessive “outsourcing” by EU entities, clearly intended to prevent a UK firm from establishing an EU presence and outsourcing most business back to the UK (this is consistent with guidance to national competent authorities already issued by ESMA).
Click here for a detailed note on the approval of prospectuses.