UK: FCA consultation on a new regime for operators of public offer platforms

Why should I read this?

The FCA’s Consultation Paper CP24/13 “Consultation on the new public offer platform regime” sets out proposals for rules to apply to operators public offer platforms (“POP”), which platforms will facilitate (predominantly small and medium-sized) companies making public offers of securities to investors outside public markets where they are raising more than £5m.

The consultation is in the broader context of the UK Prospectus Regulation, law the UK inherited from the EU on Brexit, being replaced by the Public Offers and Admissions to Trading Regulations 2024 (“POATRs”), which create the new regulated activity of operating a POP.

Broadly, companies will be required to use a POP (such as an equity crowdfunding platform) if they make a public offer of securities to a broad investor base outside a public market and the total value of the offer exceeds £5 million, unless another exemption from the requirement to publish a prospectus is available.

CP24/13 sets out the FCA’s proposed rules applying to firms operating a POP, which will require specific authorisation; firms wishing to operate a POP will either need to vary their permission if they are already authorised, or, if they are not, to seek new authorisation from the FCA, although the FCA expects it to be rare that firms will carry on the regulated activity of operating a POP without any other permissions.

See also our related client briefing, “Financial Conduct Authority sets out draft new rules to replace the UK prospectus regime”.

What do I need to know about the proposed POP regime

The rationale

Under the new POATR regime, the regime for admissions to trading has been decoupled from that for public offers, which has been designed to enable smaller and medium-sized companies to benefit from the scaling opportunities that capital markets offer, without needing to comply with the requirements associated with admitting securities to a regulated market or multilateral trading facility (“MTF”). 

The making of offers to the public outside of a public market is generally prohibited under POATRs, subject to various exemptions.  These include an exemption for offers not exceeding £5m over a 12-month period and offers made through a POP.

POPs have been developed to fill a gap between crowdfunding and formal listing.

Design

In designing the POATRs the Government has taken account of the Gloster Report and the problems with the mass-marketing of speculative mini-bonds, accordingly, the POP rules proposed by the FCA focus on:

• expectations on the due diligence to be carried out by POP operators prior to facilitating an offer of an issuer’s securities;
• appropriate disclosures to investors on an issuer and its securities; and
• the appropriate liability and redress linked to these obligations.

The new POP regime can broadly be broken into two elements:

• specific requirements on due diligence and disclosures which the FCA proposes to apply to POP operators; and
• rules that are applicable to authorised firms more generally, including investment-based crowdfunding platforms or that result from a specific categorisation (eg, MiFID or non-MiFID firms), when they operate POPs.

Specific rules

The FCA intends the regime to ensure POP operators gather sufficient information to determine whether to facilitate public offers.  Such operators will need to gather minimum information on issuers and the securities they will issue, subject to an underpinning obligation to ensure they obtain ‘sufficient’ information to determine whether it is appropriate to facilitate the relevant public offer and to be able to present the information an investor needs to make an informed decision whether or not to invest.

POP operators will need to assess the completeness and accuracy of the information they collect to an over-arching standard of reasonableness (ie they will need to take reasonable steps when discharging verification duties).  This is likely to be easier in the case of factual information, but in the case of non-factual information it is proposed that POP operators assess the ‘plausibility’ of that information.  While it gives factors which might influence this, the FCA recognises that it won’t be possible to define this concept exhaustively.

The authorised operators of POPs will also need to assess the creditworthiness of issuers and, as referred to above, the appropriateness of the issuer or public offer.  The FCA sets out a number of factors relevant to that latter obligation, and will require POP operators not to facilitate a public offer if it cannot satisfy itself that specific conditions are met.

There will also be requirements regarding the information that needs to be provided to investors.

It is further proposed the operators of POPs should not be liable in all cases where an issuer fails, but may be liable to pay compensation where they have breached the FCA’s rules in a way which is connected to loss by investors.

Other regulation

The FCA recognises that if firms have permission to carry on regulated activities in addition to operating a POP, other provisions of the FCA Handbook are likely to apply, including the threshold conditions, systems and controls requirements, the Principles for Businesses, the Consumer Duty and conduct of business requirements.

The precise requirements which will apply will depend on the business model used, and will be heavily dependent on whether the relevant firm is performing MiFID activities or not.  The FCA sets out some detail of the different ways these requirements will apply to MiFID and non-MiFID business, including in respect of minimum capital requirements, which it is proposing to increase to £75,000 for POP operators even if they are not MiFID firms, and product governance.

The FCA also provides details of its expectations around financial promotions made through POPs by issuing firms, the likely requirements for POP operators to be authorised to approve such financial promotions and the fact that the rules on promotion of high-risk investment are likely to be relevant to such offers.

Next steps

The consultation is open for responses until 18 October 2024.  The FCA aims to finalise the POP rules by the end of H1 2025.  There will be a further period prior to the new rules coming into force.  The FCA need to consider what further time is required before the regime comes into force to enable firms to apply for permission to carry out the regulated activity.

Responses to the consultation can be submitted by the form on the FCA website or by email to cp24-13@fca.org.uk.  We can assist you with responding to the consultation. 

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