Advertisements

Question 1

Exam structure

Answer 1

1. Does the communication fall within the definition of an advertisement? (PRR Appendix 1, Relevant definitions)
2. What are the requirements if it falls within the advertisement regime? (PRR 3.3.1EU/Art. 22, Prospectus Regulation and PRR 3.3.2EU/Arts. 13 to 16, Prospectus RTS Regulation)
3. What are the consequences of failure to comply? (ss. 87K/87L/91(1A)/91(3) FSMA)

Question 2

1. Does the communication fall within the definition of an advertisement? (PRR Appendix 1, Relevant definitions)

Answer 2

• PRR Appendix 1: Relevant definitions – defines ‘advertisement’ as a communication “relating to a specific offer…to the public or…admission to trading on a regulated market” and “aiming to specifically promote the potential subscription or acquisition of securities”.

Question 3

2. What are the requirements if it falls within the advertisement regime? (PRR 3.3.1EU/Art. 22, Prospectus Regulation and PRR 3.3.2EU/Arts. 13 to 16, Prospectus RTS Regulation)

Answer 3

• PRR 3.3 sets out a number of provisions from the Prospectus Regulation and the Prospectus RTS Regulation that govern the lay-out and content of any communication (whether written or oral) that comes within this definition.
• These provisions first require that advertisements must contain a number of disclaimers and warnings. Advertisements must:
  a) PRR 3.3.1EU/Art. 22(2), Prospectus Regulation: must state that a prospectus exists or will: that a prospectus has been or will be published and indicate where investors are, or will be, able to obtain it – for example, by clearly identifying the website where the prospectus is or will be published or including a hyperlink to the prospectus (PRR 3.3.2EU/Art. 13, Prospectus RTS Regulation);
  b) PRR 3.3.1EU/Art. 22(3), Prospectus Regulation: be clearly recognisable as an advertisement, and include the word “advertisement” in a prominent manner: PRR 3.3.2EU/Art. 14(1)(a), Prospectus RTS Regulation;
  c) PRR 3.3.2EU/Arts. 14(1)(b) and (c), Prospectus RTS Regulation: recommend that potential investors read the prospectus before making an investment decision in order to fully understand the potential risks and rewards of investment, but also include a statement that approval of the prospectus (by the FCA) should not be understood as an endorsement of the relevant securities; and
  d) PRR 3.3.2EU/Art. 14(2), Prospectus RTS Regulation: if it is in written form, be sufficiently different in format and length from the prospectus that no confusion with the prospectus is possible.
  PRR 3.3.1EU/Art. 22(3): the information must not be accurate or misleading, it must be consistent with the Prospectus. In addition, the information that is disclosed in an advertisement must not be inaccurate or misleading and must be consistent with the information contained in the prospectus (if already published), or with the information required to be in the prospectus (if it has not been published yet) (PRR 3.3.1EU/Art. 22(3), Prospectus Regulation).
  Information in an advertisement must not:
  a) contradict the information contained in the prospectus;
  b) refer to information that contradicts the information in the prospectus;
  c) present the information in the prospectus in a materially unbalanced way, including by way of presentation of negative aspects with less prominence than positive aspects, omission or selective presentation of certain information; or
  d) contain “alternative performance measures” (i.e. financial measures of financial performance etc., other than those defined in the applicable financial reporting framework), unless they are also contained in the prospectus (see PRR 3.3.2EU/Art. 16, Prospectus RTS Regulation).
• PRR 3.3.2/ Art. 15 P.RTS - ads which become misleading should be updated and recirculated

Question 4

Penalties

Answer 4

• s. 91(1A) FSMA: if the FCA considers that a person offering transferable securities to the public or requesting their admission to trading on a regulated market has contravened a provision of the Prospectus Regulation or the Prospectus Regulation Rules, such as PRR 3.3, it may impose on such party a penalty of such amount as it considers appropriate.
• In addition, the FCA has power under s. 87K FSMA to suspend or prohibit an offer to the public, and power under s. 87L FSMA to suspend or prohibit admission to trading on a regulated market, if such a provision has been infringed.