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In the global economy there are a number of reasons why international companies may wish to extend offers of their shares or securities in the UK, whether as part of a fundraising, acquisition or arrangements for the participation of UK employees in an international employee share plan. Set out below is a broad overview of the common issues raised by such actions under UK financial services and securities laws.
Financial promotion
An international company wishing to make an offer or invitation to subscribe for its shares or securities in the UK, will need to comply with the financial promotion regime under the Financial Services and Markets Act 2000 (FSMA). This contains a restriction on any person in the course of business, communicating an invitation or inducement to engage in investment activity unless that person is an authorised person under FSMA, the contents of the communication have been approved by an authorised person for the purposes of section 21 of FSMA or the communication is covered by an exemption contained in the relevant statutory instrument (FPO).
The term ‘financial promotion’ is likely to capture all kinds of written, electronic and oral communications relating to an offering of shares or securities including, for example, those made in the context of a meeting, conference or telephone conversation. Unless the communication is to be issued or approved by an authorised person, it will be important to ensure wherever possible, that the communication falls within one of the exemptions under the FPO.
Under the FPO, the principal issue for consideration will be the identity of the recipient. So, for example, financial promotions communicated to persons considered to have sufficient expertise to understand the risks involved, such as professional investors, investment managers and stockbrokers, would be exempt, provided certain conditions are met. Other exemptions include an exemption (subject to certain conditions) for any communication made in connection with the sale of a body corporate where the transaction consists of or includes 50 per cent or more of the voting shares of that body corporate and any communication made for the purposes of an ‘employee share scheme’, which means any arrangement by the company (or a member of the same corporate group) to facilitate transactions in specified investments in that company between or for the benefit of employees or former employees of the company or of another member of its group or the holding of such investments by or for the benefit of such people.
A financial promotion relating to securities to be issued as consideration for the acquisition of the shares or securities of another body corporate will need to be approved for the purposes of section 21 of FSMA unless there is an applicable exemption under the FPO. However, approval of the financial promotion will not be necessary where it is included in a prospectus or supplementary prospectus approved by the Financial Conduct Authority under FSMA.
Prospectus
In line with other jurisdictions in the European Union, whenever a company makes an offer of its transferable securities in the UK, or seeks admission of its transferable securities to an EU-regulated market in the UK, it will need to publish a prospectus which must be compliant with the requirements under Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 (Prospectus Regulation) repealing the Prospectus Directive.
Preparation of a prospectus usually involves a significant amount of time and cost for the issuing company. For this reason, it is common when structuring an offer of shares or securities to consider whether there is any exemption available, so that a prospectus is not required.
An approved prospectus will not be required if an offer of transferable securities falls within one of the applicable exemptions, such as where the offer is made to, or directed at, ‘qualified investors’ only, is made to or directed at, fewer than 150 natural or legal persons (other than qualified investors) in the UK or the total consideration for the transferable securities being offered in the EEA States does not exceed EUR 8 million (calculated over 12 months).
Also, when the Prospectus Regulation enters into full force in 21 July 2019, the current exemption from the requirement to publish a prospectus in relation to an offer of transferable securities to existing or former directors or employees by their employer or an affiliated undertaking applies. This is the case where the company has its head office or registered office in the EU or is established outside the EU, but has transferable securities admitted to trading in the EU. It will be extended to offers by all companies, regardless of whether they are registered or headquartered in the EU and/ or have securities admitted to trading in the EU (provided they make available a simple disclosure document).
The position in the UK following 29 March 2019 (when the UK is currently due to leave the EU) remains unclear. However, the UK Government has published a draft statutory instrument containing proposed amendments to retained EU law related to the Prospectus, Transparency and Consolidated Admissions and Reporting Directives to ensure that they continue to operate effectively once the UK leaves the EU, in any scenario.
Breach of UK regulations
A breach of the UK financial promotion, prospectuses and the conduct of business regulations carry both civil and criminal sanctions. Compliance is therefore essential. Additionally, any agreement made pursuant to an unlawful financial promotion or by a person lacking the necessary FCA authorisation, may be unenforceable.
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