EU member states agree to overhaul prospectus rules for European entrepreneurs

Representatives from member states of the European Union (EU) Wednesday reached an agreement to reform prospectus rules, which marks a further step towards establishing a Capital Markets Union for European entrepreneurs.

The EU member states have given their backing to the European Commission's proposal to overhaul prospectus rules that apply when firms wish to tap Europe's capital markets, a statement said.

The EU's executive body, the European Commission, proposed a new EU Prospectus Regulation in November 2015 in order to improve access to finance for companies and simplify information for investors.

A prospectus is a legal document that describes the company, its main line of business, its finances and shareholding structure. It contains the information an investor needs to have before making a decision whether to invest in the company.

Many companies that want to raise money from the public need to provide investors with a prospectus.

However, prospectuses can also be costly and burdensome for companies, especially smaller ones, to produce, often requiring hundreds of pages of detailed information. For investors, it can prove difficult to wade through very detailed information.

"Getting this right will make it easier, quicker and cheaper for businesses to raise money on the markets, while ensuring investors get the information they need," Jonathan Hill, EU Commissioner responsible for Financial Stability, Financial Services and Capital Markets Union, said.

In order to alleviate the burden on small issuers, the European Commission proposed to raise the threshold for the mandatory prospectus from 5 million euros (5.7 million U.S. dollars) to 10 million euros, meaning that it would allow smaller sums to be raised without a prospectus.

Meanwhile, there will be no fragmentation in the EU internal market: small issuers that wish to raise capital in several EU member states can still "opt into" the EU prospectus, the statement said.

The proposal also contained a simplified prospectus for issuers that frequently tap into capital markets. Frequent issuers will be able to use an annual Universal Registration Document (URD), a sort of "shelf registration" containing all the necessary information on the company that wants to list shares or issue debt.

They will benefit from significantly reduced approval times (five days maximum) once they decide to seize an opportunity to raise capital, according to the statement.

"This is another step forward for the Capital Markets Union," said Hill, adding that he hopes the European Parliament can agree on its position quickly so more businesses can get funding to expand. Endit