Publication of ESMA’s Peer Review Report on the scrutiny and approval procedures of prospectuses by competent authorities

On 21 July 2022 the European Securities and Markets Authority published its Peer Review Report on the scrutiny and approval procedures of prospectuses by national competent authorities (the “NCAs”) during the period from 4 December 2019 to 30 June 2021 (the “Report”) which also served to evaluate the impact of the varying methods of scrutiny and approval by NCAs on the ability of issuers to raise capital in Europe. The Report contains a number of recommendations not only for the NCAs but also recommendations directed at ESMA and the European Commission to aid supervisory convergence in this area.

Article 20(13) of Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71 (the “Prospectus Regulation”) requires ESMA to organise at least one peer review of the scrutiny and approval procedures of NCAs, including notifications of approval between NCAs, and to assess the impact of the different approaches of scrutiny and approval by competent authorities on issuers’ ability to raise capital in Europe.

The peer review was carried out following the ESMA Peer Review Methodology by an ad hoc Peer Review Committee which assessed all NCAs in respect of how they scrutinise and approve prospectuses by way of questionnaires. Additionally the Peer Review Committee also carried out onsite visits to the AMF (France), BaFin (Germany), CBI (Iceland), CONSOB (Italy), CSSF (Luxembourg), SFSA (Sweden) to gain a deeper understanding of how these NCAs scrutinise and approve prospectuses.

The five areas of assessment covered in the peer review were: (i) the scrutiny of prospectuses having regard to their completeness, comprehensibility and consistency under Articles 35 to 45 of Commission Delegated Regulation 2019/980; (ii) the approval process by NCAs of prospectuses, including the notification of approvals by competent authorities pursuant to Article 25 of the Prospectus Regulation; (iii) NCAs’ application of ESMA’s Guidelines 1-5, 7 and 11 on risk factors; (iv) the adequacy of NCA resources to carry out the scrutiny and approval of prospectuses; (v) the independence and the liability regime of the NCA in relation to the supervision of prospectuses.

The key findings of the report were the following:

  1. satisfactory scrutiny of prospectuses by NCAs was identified, via the adoption of the “four-eye principle” and that generally reinforced scrutiny occurred with regard to higher risk prospectuses;
  2. the notion of ‘additional criteria’ NCAs may adopt during the scrutiny process lacks clarity, in this regard, the report recommended that the European Commission, together with ESMA’s technical assistance as needed, address this issue;
  3. efficiency improvements for some NCAs’ approval processes (including Malta’s approval process) is required;
  4. while the ESMA Guidelines on risk factors are applied satisfactorily, from an enforcement perspective there is room for future supervisory convergence work;
  5. generally, NCAs have sufficient and proportionate resources to scrutinise prospectuses; and
  6. the liability regime in Italy has a strong impact on how Consob scrutinises and approves prospectuses.

The local NCA, the Malta Financial Services Authority, fully met the expectations of the Peer Review Committee in the following four, of five, areas of assessment: scrutiny of prospectuses; guidelines on risk factors; NCA resources and independence and liability regime of the NCA. The only area in which the MFSA was deemed to largely meet expectations was that of the approval process for prospectuses. The Report recommends that NCAs which require their Board to approve a prospectus should “consider reviewing their approval processes to assess whether they can be organised in a more efficient manner (without jeopardising the thoroughness of the scrutiny process).” 

Furthermore, “The eleven NCAs taking more than 1 or 2 working days for the approval of prospectuses [BE, CY, EE, HR, IT, LT, LV, MT, RO, SI and SK] shall review their procedures to see if they can be made more efficient. NCAs shall be mindful that, irrespective of the organisation of their prospectus approval functions and of the level of sign-off for approval required, they ensure efficient mechanisms for sign-off through possible pre-consultation or possible approval in principle by senior parties (senior management / Board) to enable written procedure, etc. The PRC considers that, from the point in time where the issuer has addressed all comments from the NCA, formal approval should be able to be completed under an efficient approval process within 1-2 days, except in exceptional circumstances.”

All NCAs are required to follow up on the recommendations relevant to them in the Report and ESMA shall carry out a follow-up assessment in a couple of years to review the level of improvements achieved based on the findings and recommendations of the Report. We welcome any such improvements to the prospectus, and accompanying admissibility to the listing, and approval process as a means to foster further growth of the local capital markets.