Brexit and International Capital Markets
25 September 2020
On 31 January 2020 the UK officially left the European Union (“EU”) and the UK-EU withdrawal agreement came into force. Under the terms of the withdrawal agreement, the UK entered into a time-limited transition period that will expire at 11pm on 31 December 2020. The UK chose not to extend the transition period.
During the transition period, most EU law applies to the UK (unless otherwise provided in the withdrawal agreement). The UK is treated for most purposes as if it were still an EU member state: it continues to participate in the EU Customs Union and the Single Market. However, it no longer participates in EU decision-making and does not have a vote.
Significant changes are expected at the end of the transition period, even if a comprehensive future UK-EU relationship is concluded by 31 December 2020.
This section considers some possible implications of Brexit on International Capital Markets, especially in circumstances where no agreement has been reached between the EU and the UK by the end of the transition period (‘no-deal scenario’).
Passporting of Prospectuses
Under the EU Prospectus Regulation, a prospectus approved in an EU/EEA member state (‘home state’) can be “passported” into another EU/EEA member state (‘host state’), which means that it can be used to offer securities to the public or to be admitted to trading on a regulated market in that other country without further approval. During the transition period, the EU Prospectus Regulation regime continues to apply to the UK.
After the transition period, changes to the UK prospectus regime will depend on the outcome of the negotiations on the future relationship between the UK and the EU.
In a no-deal scenario, the EU would default to treating the UK as a ‘third country’. The UK would thus incur the loss of automatic passporting rights. This means that:
Prospectuses and supplements approved by the UK Financial Conduct Authority (‘FCA’) before the end of the transition period can no longer be passported into EU/EEA host states;
Prospectuses approved by the FCA and passported into EU/EEA host states before the end of the transition period can no longer be supplemented.
Since these prospectuses can no longer be supplemented, they can no longer be used to offer securities to the public or admit securities to trading on a regulated market in an EU/EEA member state.
Where an FCA approved prospectus has already been passported into an EU/EEA host state before the end of the transition period:
In order to continuing an offer to the public in such host state, a prospectus would be need to be approved in a new EU/EEA home state for the part of the offer which will take place after the end of the transition period
In order to make a new offer to the public or to seek a new admission to trading in a regulated market in an EU/EEA host state, the issuer would need to have its prospectus approved in a new EU/EEA home state
The only scenario where an approval from a new EU/EEA member state is not required is where an issuer seeks to maintain an admission to trading on a regulated market in the EU/EEA.
For further information, see:
ESMA Q&A Prospectuses 30th updated version – April 2019 is still of relevance, Question 104 (page 87 & 88)
For more information on the impact of Brexit, contact a member of our Debt Capital Markets & Listing team.