FCA consults on new Public Offer Platform regime

What does this mean?

The FCA proposals form part of a wider set of changes that will replace the current UK Prospectus Regulation. The regulator’s aims include ensuring that the regulation and oversight of capital raising is proportionate while at the same time providing appropriate protection to investors. The CP should be read alongside CP 24/12 which provides further details about the POATRs.

Firms operating a POP will be subject to a set of bespoke rules, as well as existing regulatory requirements. The regulatory framework applicable to POP operators will depend on firms’ existing regulatory permissions and their specific business model.

The main focus of the bespoke rules is on three areas:

• Information gathering and due diligence: Firms operating a POP will be required to gather a range of information on prospective issuers, including general information, financial information, and information on the public offer itself. A full list of the requirements is included in the CP. Firms must then undertake a range of assessments as part of deciding whether to facilitate the public offer, including:

i. A ‘reasonable verification exercise’ of the information gathered. Any non-factual information will require a judgement-based plausibility assessment. The FCA will make guidance that clarifies this requirement in the context of other existing regulatory obligations.

ii. An assessment of the issuer’s creditworthiness. The FCA confirms that this will not be an assessment of an issuer's ability to meet future obligations, nor a credit rating. POP operators will be able to rely on information obtained directly from the issuer, or from third-party providers such as credit reference agencies, as long as they have no reason to doubt the information received.

iii. An assessment of whether the offer is appropriate to be made to the public. The CP provides a list of factors that firms will need to consider when deciding whether to facilitate each specific offer of securities by an issuer.

• Disclosures to investors: POP operators will be required to disclose to potential investors sufficient information about the due diligence they have carried out, as well as a range of other information, to enable investors to make informed and effective investment decisions. The CP sets out the minimum factors that should be included in the disclosure summary, and includes guidance on how firms should approach certain issues that will require the use of judgement. Proprietary and commercially-sensitive information will have a carve-out from the disclosure summary.

• Liability and redress framework: The proposed liability regime for POP operators will be based on their contravention of the FCA’s rules and standards. Issuers using POPs will not be subject to FCA regulation themselves, however the FCA notes that investors may be able to rely on common law remedies to seek compensation from issuers in cases of wrongdoing. The FCA will issue a further consultation on the applicability of Financial Ombudsman Service (FOS) coverage to investors and issuers. The FCA proposes to extend Financial Services Compensation Scheme (FSCS) coverage to investors only.

The CP also sets out the wider regulatory rules that will apply to POP operators including the threshold conditions, overarching Principles for Business, remuneration rules, and the Consumer Duty depending on firms’ business models and activities.

The application of the FCA’s Financial Promotions rules is an important element of the POP framework. Operators will need to appropriately categorise any offered securities, and ensure restrictions on promotions are applied accordingly.

What do firms need to do?

Firms that are considering operating a POP should carefully consider the proposals and assess how they would apply to their specific business models and activities.

Specifically, firms will need to apply for initial authorisation or a variation of permission for the new regulated activity of operating an electronic system for public offers of relevant securities.

As set out in the CP, POP operators are also likely to need arranging and dealing permissions, as well as permission to approve financial promotions. Firms should review their existing permissions against the specific activities they propose to undertake in relation to operating a POP.

A significant consideration is whether a POP operator’s regulated activities would bring them into scope of the Markets in Financial Instruments Directive (MiFID) or not. The CP makes clear that the FCA does not consider the new regulated activity to be MiFID business, however firms that operate POPs may carry out other regulated activities that may be MiFID business, with implications for the applicability of a range of rules including:

• the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC);

• the Prudential Sourcebook for MiFID Investment Firms Sourcebook (MIFIDPRU);

• the product governance rules contained in the PROD 3 section of the FCA’s handbook.

Firms should engage with the FCA’s consultation through providing feedback on relevant proposals, in particular taking account of the anticipated costs, reporting requirements and compliance implications.

Next steps

The closing date for providing feedback on the CP is 18 October 2024. The FCA expects to finalise its rules by late Q2 2025. Further communications on the FCA’s implementation approach, including the potential for a transitional regime, are expected at a later date.