The Public Offers and Admissions to Trading Regulations: Application to MTFs

In January 2024, phase 1 of the Public Offers and Admissions to Trading Regulations (POAT Regulations) came into force. We examine some of the implications for issuances on primary MTFs, such as AIM.

What are the POAT Regulations?

This statutory instrument creates a new regulatory framework for public offers and admissions to trading, with enhanced rulemaking responsibilities delegated to the FCA and these rules will eventually replace the UK Prospectus Regulation.

How will the POAT Regulations differ from the UK Prospectus Regulation in relation to junior markets?

One way in which the POAT Regulations differ from the existing UK Prospectus Regulation is in relation to their treatment of issuances on junior markets such as AIM, also known as multilateral trading facilities (MTFs). Currently under the UK Prospectus Regulation, securities admitted to trading on an MTF are not subject to the prospectus rules governing admissions to trading as these only apply to regulated markets, such as the main market of the London Stock Exchange.

A corollary of this is that for most issuances of shares on an MTF, an exchange mandated admission document is required instead of a statutory prospectus and the statutory prospectus liabilities set out in section 90 of the Financial Services and Markets Act 2000 (FSMA 2000) do not apply to that admission document. This means that whereas a company listed on an MTF may incur civil liability under section 90A FSMA 2000 for dishonestly or recklessly making untrue or misleading statements in published material (and its directors may be sued for breach of duty in that event), the specifically tailored remedy for investors providing for liability for companies and directors in relation to untrue or misleading statements in a prospectus which is set out in section 90 FSMA 2000 does not currently apply to most issuances on an MTF. 

What are the differences between section 90 and section 90A FSMA 2000?

There are three key differences between section 90 of the FSMA 2000 and section 90A of the FSMA 2000:

  1. Party to be sued: A section 90 claim can be brought against any person responsible for the prospectus including the company, its directors and those stated as accepting responsibility for the prospectus. A section 90A claim can only be brought against the company.
  2. Knowledge: In relation to section 90 claims there is no requirement for dishonesty or knowledge that the prospectus contains misleading or untrue statements. In relation to section 90A claims, a key requirement for establishing liability that a person discharging managerial responsibilities (PDMR) knew the statement to be untrue or misleading or was reckless as to that fact.
  3. Reliance: In order to establish liability under section 90 there is no requirement for reliance on the untrue or misleading statement. However, section 90A liability does require the person bringing the claim to show reliance on the untrue or misleading statement and that it was reasonable for that person to rely on such statement.

How might this change?

Under Regulation 15(1) of the POAT Regulations, the FCA is given a power to make rules relating to the admission of transferrable securities to trading on a “primary MTF”. A “primary MTF” is an MTF which maintains rules relating to the eligibility of issuers, conditions for admission to trading and ongoing compliance with listing standards. It is intended to capture MTFs, like AIM, which act as primary markets and allow companies to issue new capital rather than only trade existing instruments.

In the case of MTFs such as AIM and AQSE which are open to retail investors, the FCA may require an operator of a primary MTF to require issuers to publish an “MTF admission prospectus” in connection with the admission of securities. The effect of the FCA exercising this power would be to bring AIM admission documents within the new liability and compensation scheme created by the POAT Regulations, which will replace section 90 FSMA 2000. It would also bring AIM admission documents within the separate liability regime for protected forward looking statements which is to be brought in as part of these reforms and which resembles the standard currently found in section 90A FSMA 2000.

What would the consequences be for issuers?

Although the effect of these reforms is to potentially increase the statutory liability of directors and other persons responsible for an admission prospectus, the content requirements for the “MTF admission prospectus” will continue to be set by the MTF and so the content requirements are unlikely to materially change. It is envisaged that the changes under the POAT Regulations will encourage issuers to make broader offers to more recipients (including retail investors) as they will no longer be disincentivised from offering to more than 150 persons by the current requirement to publish an extensive UK Prospectus Rules compliant prospectus in those circumstances. In addition “MTF admission documents” will be subject to relaxed rules on liability for forward looking statements which are being brought in as part of this package of reforms. Finally, the admission process for MTF issuers looks like it will not change materially either, as it is not envisaged that an “MTF admission prospectus” will be subject to FCA review. 

An MTF which is only open to qualified investors, such as the International Securities Market of the London Stock Exchange, will not be subject to this rulemaking power.

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