The EU has agreed to exempt small and medium-sized enterprises (SMEs) from the burden of producing lengthy and expensive prospectuses to access funding through capital markets. The EU's prospectus rules will now allow start-ups and SMEs to raise up to €1 million on local growth markets without a prospectus.

It can be costly and time-consuming for companies to produce prospectuses, which are required to provide investors with detailed corporate information before investing through the capital markets. This move is part of the Capital Markets Union Action Plan. The new rules aim to provide clearer information to investors.

Financial Commissioner Valdis Dombrovskis said: “We have completed another milestone of the Capital Markets Union, cutting unnecessary red-tape to make it easier and cheaper for companies, especially SMEs, to raise money in the capital markets. Investors will get clearer information to make their investment decisions. This will encourage more cross-border investment opportunities and help Europe to grow."

Changes to EU prospectus rules

The agreement provides for the following changes:

• The smallest capital raisings and crowdfunding projects up to €1 million will not need to issue a prospectus at all.
• The EU prospectus will only be mandatory from € 8 million in capital raised, almost doubling the previous €5 million threshold. For offerings below that threshold, issuers can raise capital according to local market rules issued by growth markets. This will support the growth of local or regional stock small company exchanges (including the future SME growth markets introduced by MiFID II).
• There will be a new EU growth prospectus that will be available for SMEs, mid-caps admitted to an SME Growth market or small issuances by non-listed companies. This will boost the ability of small and growing companies to raise money across the single market.
• An alleviated corporate bond prospectus will be available for admission to wholesale debt markets. Previously, the alleviated debt prospectus was only available for debt issued in denominations of at least € 100 000, a denomination size which made it difficult for many investors to invest in corporate debt. The new corporate debt prospectus aims to introduce more liquidity into secondary markets for corporate bonds.
• Frequent participants in the capital markets will now have a frequent issuer regime that they can activate once an opportunity to raise funds arises, which will halve approval times from 10 days to 5.
• A shorter prospectus for secondary issuances will allow issuers already admitted to stock markets and SME growth markets to benefit from a lighter prospectus for any "follow-up" issuances.
• Prospectus summaries will become shorter and the language used will be easier to understand for investors.
• No more paper prospectuses will be required, except if a potential investor explicitly requests one. This should result in considerable cost savings and move prospectuses to the digital age.
• A new European online prospectus database will be operated free of charge by European Securities and Markets Authority (ESMA).

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CTMfile take: According to the Commission, this is a 'major milestone' towards a European Capital Markets Union. The new prospectus rules aim to address the legal uncertainty and unjustified burdensome requirements that were part of the current Prospectus Directive (2003/71/EC). It says that the new rules will address these weaknesses.