26 May 2016

FEE: Simplified prospectus for SMEs

FEE has published a briefing paper with the aim to add a concrete proposal to the EC’s efforts to establish a simplified prospectus regime for small- and medium-sized enterprises under the Capital Markets Union.

The European accountancy profession actively contributes to boost financing for SMEs, also in relation to further integrating EU capital markets. Professional accountants combine a thorough understanding of SMEs and their capital needs with knowledge of the Initial Public Offering (IPO) process. FEE wants to use this expertise to progress the EC’s CMU initiative and actions to foster growth and jobs in Europe.

The paper is a joint effort of the Federation of European Accountants, European Contact Group (ECG) – an informal grouping of the six largest accounting networks in the EU, and the European Group of International Accounting Networks and Associations (EGIAN) – an informal forum of 22 leading middle-sized accounting networks and associations.

On 30 September 2015, the EC launched an Action Plansetting out over thirty key measures to achieve a true single market for capital in Europe – the CMU.

The EC envisages that “deeper and more integrated capital markets will lower the cost of funding and make the financial system more resilient. All 28 Member States of the EU will benefit from building a true single market for capital.”

The purpose of the CMU is to mobilise capital in Europe and channel it to all companies – including SMEs – that need funding to expand and create jobs. Facilitating SME access to capitalwould increase the investment opportunities of investors with smaller sums to invest, thus enabling them to further diversify their investment portfolios. In turn, SMEs would rely less on bank financing whilst having greater access to financing that enables them to grow and prosper.

One of the first steps towards building a CMU is the proposal to amend the Prospectus Directive. The proposed Prospectus regulationputs forward, amongst other things, a differential disclosure regime for SMEs:

“SMEs should likewise be offered the option to draw up a distinct, tailor-made prospectus when they offer securities to the public, focusing on information that is material and relevant for companies of such size. (…). In addition, a new optional ‘question and answer’ format is expected to help SMEs in drawing up their own prospectus, thus saving considerable legal fees.”

Furthermore, the EC proposes to enlarge the scope of documents whose information may be incorporated by referencein a prospectus, provided that the information is published electronically.

The European Parliamentis also considering changes to the current EU prospectus regime. The leading Member of the European Parliament (MEP) on the issue, Philippe De Backer (ALDE, Belgium) and his successor, Petr Jezek (ALDE, Czech Republic), have proposed the option of a EU Growth prospectus intended for offers of securities to the public with a total consideration up to €20 million. The proposed EU Growth Prospectus should be proportionate, take into account the need for reducing the costs of drawing up a prospectus for SMEs, and entail key information that is relevant and useful for the investors whilst providing appropriate investor protection.

Finally, the ESMAhas been tasked by the Commission to work on the technical details of the new prospectus regime. This will include ESMA guidance and proposals on the format and information requirements of the SME prospectus regime.

The European accountancy professionsupports these proposals, and would like to contribute to the institutions’ efforts to reform the EU prospectus regime. This document has drawn inspiration from the work and thinking of the EU institutions outlined above, and has been prepared to provide a complementing perspective on the information that should be provided to investors under a SME prospectus regime, as well as the ways in which this could be done in practice.

Full briefing paper

© FEE