Legal interpretation aids | FMA Österreich

Legal interpretation aids

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The most important elements of the legal basis of prospectus law are the Prospectus Regulation (Regulation (EU) 2017/1129 as well the Capital Market Act 2019 (KMG 2019; Kapitalmarktgesetz 2019), which clarifies the Regulation in greater detail and extends it to also cover investments. In addition, various publications by the European Securities and Markets Authority (ESMA) represent important aids in legal interpretation.

 

ESMA Publications

ESMA regularly publishes and updates documents that cover complex provisions under prospectus law requiring interpretation. The main sources for prospectus approval procedures are the ”Questions and Answers – Prospectuses” as well as the ”Recommendations”.

Margin notes 128-130 of the ESMA recommendations apply for property companies. Valuation reports containing the content listed in margin note 130 must be included in the prospectus, where and provided that equity securities and non-equity securities as defined in margin note no. 128 are issued, which are guaranteed by properties.
 
On 01.10.2019 ESMA published the Guidelines on Risk Factors under the Prospectus Regulation. The Guidelines are applied with the entry into force of Regulation (EU) 2017/1129 on 21.07.2019.

Obligation to produce a supplement in relation with COVID-19

As the recitals of Delegated Regulation (EU) 2019/979 states, it is not possible to describe all situations that make it necessary to publish a supplement to the Prospectus, since this may depend on the issuer and on the securities in question. Due to the uncertainty triggered by the COVID-19 pandemic, from the FMA’s perspective it is necessary to closely check the information in the prospectus about whether there is a potential obligation to produce a supplement. This in particular relates to the following information in a prospectus:

  • Risk factors: it is necessary to check whether a potential reassessment of risks is required with regard to the probability of their occurrence as well as the extent of their effects. This may also affect the summary.
  • Most recent events: where a prospectus refers to the effects of the COVID-19 pandemic not being able to be estimated, then as soon as such an estimation is possible, one should be included in the prospectus without delay by means of a supplement.
  • Changes to the financial and earnings situation: In addition to the compulsory publication of annual financial statements pursuant to Article 18 of Regulation (EU) 2019/979 for issuers of equity securities it may be necessary in light of the uncertain economic situation to include interim financial statements. In any case it is necessary to check whether information in the prospectus must be changed as a result of statements contained in the interim report.
  • Profit forecasts/profit estimates: Where a profit forecast or profit estimate has been published and is still open although no longer valid, then a declarations must be included in the prospectus by means of a supplement. This should contain an explanation about why such a forecast or estimation is no longer valid.

The FMA advises that the obligation about a supplement is to be assessed by the issuer, offeror or applicant for approval themselves, and the aforementioned points constitute a demonstrative list of potential circumstances that require a supplement. An in-depth review of the obligation to publish a supplement is also particularly significant in the case of securities prospectuses pursuant to Annex D as well as investments pursuant to the Capital Markets Act 2019 (KMG 2019), so that investors are able to form an informed judgement. In contrast to supplements for securities prospectuses pursuant to Regulation (EU) 2017/1129 and Annex D KMG 2019, supplements to investment prospectuses pursuant to the KMG 2019 are not approved by the FMA, but are checked by a prospectus auditor and files at the notification office. Reference is also made to the FMA’s power pursuant to Article 24 (2) of Regulation (EU) 2017/1129 the publication of a supplement to securities prospectuses is to be required, where within the time period stipulated in Article 23 (1) of the Regulation (EU) 2017/1129 a new circumstance occurs or where within this time period a material mistake or a material inaccuracy is determined.

Note on the AIFMG/AIFM Directive

Explicit reference is made to the existence of the Prospectus Regulation in addition to Directive 2011/61/EU on Alternative Investment Fund Managers, implying that under certain circumstances not only the Prospectus Regulation, but also the KMG 2019 as well as the Alternative Investment Fund Managers Act (AIFMG; Alternatives Investmentfonds Manager-Gesetz) could apply. Any review to determine whether the particular issue or business model might represent an Alternative Investment Fund (AIF) is, however, carried out independently of prospectus approval. The onus is on the issuer to determine whether the issue falls under the AIFMG and to take any appropriate measures.

FMA communication about information obligations for financial intermediaries in accordance with Article 23 (3) of the Prospectus Regulation

Financial intermediaries are the standard addressee of the information obligations defined in Article 23 (3) of the Prospectus Regulation, provided that they are authorised to distribute securities issued by others and places or distributes securities within a public offering. Therefore the term “financial intermediary” under prospectus law covers anyone who:

  • acts within the scope of a public offering by the issuer and based on a mutual business relationship (e.g. under a placement or distribution agreement) and
  • has received an individual written declaration of consent from the issuer to use the prospectus for the distribution of transferable securities within the scope of public offerings, or
  • refers to a general declaration of consent for the purposes of public offerings using the issuer’s prospectus and is therefore required to make the usage of the prospectus that is required to be approved transparent towards the investors.

In contrast anyone who does not publicly offer the securities themselves, and therefore in particular anyone who is merely active in the performance of a client order, is not covered under the term of financial intermediary under prospectus law. The information obligations in accordance with Article 23 (3) Prospectus Regulation also apply for issuers, where they are financial intermediaries and they distribute their own securities within a public offering (see ESMA Q&A on the Prospectus Regulation 18.02.2020 Q/A 8.3). The interpretations and enforcement practice about public offerings by ESMA and NCA can be applied on a case-by-case basis (cf. ESMA Q&As, FMA Information on cases to be differentiated from the term “public offering”).

The information obligations in accordance with Article 23 (3) Prospectus Regulation is linked to supplements to prospectuses, the publication of which is suitable for triggering a right of withdrawal in accordance with Article 23 (2) Prospectus Regulation. The respective financial intermediary must inform those investors towards whom they have publicly offered securities, provided that the investors have purchased the securities from the financial intermediary, and these investors might be given a right of withdrawal in accordance with Article 23 (2) Prospectus Regulation based on the published supplement. Investors, for whom there is no right of withdrawal in accordance with Article 23 (2) Prospectus Regulation, whether it be due to their having purchased the securities following the publication of the supplement or because the circumstance for the supplement was determined or occurred following the deliveries of the securities, are not required to be contacted by the financial intermediary pursuant to para. 3 subpara. 2 of the Prospectus Regulation. In cases where any doubt exists, contact should occur. Supplements that contain details about circumstances that only occurred after the end of the public offering but prior to (the in any case subsequent) admission to trading are not captured by the information obligations due to a lack of rights of withdrawal.
The same connection of information obligations to the possibility of a withdrawal also applies to individually offered securities under a base prospectus in accordance with Article 8 Prospectus Regulation. Supplements that are drawn up under this base prospectus for current and future public offerings based on the maximum validity of one year of the base prospectus that is to be observed, therefore do not authorisation the withdrawal of subscriptions from previously and already closed offers of securities under this base prospectus.

Differentiating cases

Information on cases to be differentiated from the term “public offering” pursuant to Article 1 para. 1 no. 1 KMG 2019:

  • Where a customer contacts a credit institution and expresses the wish to purchase a specific security, the conditions constituting a case of public offering pursuant to Article 1 para. 1 no. 1 KMG are not met.
  •  Where, upon a customer’s request for advice on securities, a credit institution uses lists of information on securities, such a case represents individual securities advice and not a public offering within the meaning of Article 1 para. 1 no. 1 KMG.
  •  Where lists of information about securities are published on the credit institution’s website solely for the purpose of providing information to existing investors, this does not represent a public offering within the meaning of Article 1 para. 1 no. 1 KMG, provided that:
    • only data on the ISIN, the title of the securities and the prices are disclosed; and
    • the information is for secondary market investors; and
    • a disclaimer is published (i.e. indicating that it is not a public offering); and
    • no advertising activities as specified in Article 4 KMG take place, which could qualify it as a public offering within the meaning of Article 1 para. 1 no. 1 KMG.

Further information: