What are the proposals?
The government is in the process of finalising a new legislative framework intended to replace the UK Prospectus Regulation. The Public Offers and Admissions to Trading Regulations 2023 (POAT Regulations) statutory instrument was laid in Parliament on 27 November 2023.
Under the POAT Regulations there will be a new regulated activity of operating a public offer platform. Issuers will need to use a regulated platform where the total value of a proposed “off market” public offer is £5 million or more unless an exemption is available. As such, the new approach is likely to be relevant to wider offers involving retail investors. It is akin to investment related crowdfunding or boutique finance activity, which is already regulated. The Financial Conduct Authority (FCA) will authorise and regulate such public offer platforms.
What are the core aims?
One of the leading rationales behind the introduction of the new public offer platform is to achieve greater regulation in, what is currently, somewhat of a “grey area” of investment activity: public offers that are made outside of the current Prospectus Regime. In the existing investment space, such public offers can pose significant risks to investors, eg, if offers are fraudulent or highly speculative. From the “smaller issuer’s” perspective however, the cost of producing a prospectus and obtaining FCA approval can be disproportionate, eg, where seed funding or growth capital is being sought. The new regime is intended to be more proportionate in such instances, whilst also balancing investor risks.
There appears to be clear recognition that crowdfunding platforms are a key primary fundraising capital market but are currently lacking in regulation. The core aims of the new regime are therefore to ensure that:
- sufficient due diligence and checks on companies are conducted to prevent fraud and facilitate genuine capital raising, which will strengthen investor protection and support market integrity for such offers
- investors have sufficient accurate and useful information on both the company and the securities being offered in order to understand the opportunity and risks when investing in securities on a platform, and
- companies can raise capital efficiently and effectively through such platforms, subject to appropriate scrutiny and transparency.
Consultation feedback
Market feedback from interested parties reflects general agreement to the proposed regime. There has been some debate around the nature of due diligence undertaken, and the extent and manner in which findings are disclosed to investors. Some of the respondents pointed to a lack of thorough due diligence by existing crowdfunding platforms under the existing regime, along with inconsistent and sporadic approaches to ongoing disclosures by existing crowdfunding platforms. These observations lend support to the overarching aims of the new regime proposed. Consumer testing may help determine this and ensure the end-result is appropriate, balancing the needs of, and costs to, all stakeholders.
Another key area requiring greater clarity is the investor v. platform operator’s respective liability position. In the current crowdfunding space, there is often a lack of certainty in this regard according to feedback.
Interplay with proposed “Intermittent Trading Venue”
As noted above, one observation from the consultation respondents was that the existing approach to ongoing disclosure by crowdfunding platforms to investors was sporadic and inconsistent. The reason for this is because such platforms are used on a “one-off” basis; there is no secondary trading in the shares once the offering has completed. This leads to an interesting interplay with the FCA’s proposals to create a new platform known as an “Intermittent Trading Venue” (ITV) that will facilitate windows for trading in private companies’ shares at pre-determined intervals. If effectively implemented, the ITV concept would likely trigger a necessary change in the need for ongoing disclosure to investors under the new public offer regime.
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