Our Legal and Primary Markets Expert Groups contributed to our response to ESMA's consultation on its draft guidelines on risk factors under the Prospectus Regulation.
Overall, we had three main observations on the guidelines:
- Specificity: We are concerned that the proposed guidelines ignore the fact that some risk factors may apply to a wide range of companies, yet still be specific to each individual company. We believe that the inclusion of so-called boilerplate or generic risk factors should only be challenged if they are not actually relevant to the issuer of its securities.
- Using the IFRS definition of materiality: We question the rationale of this choice when the Prospectus Regulation already sets out its own materiality test for information to be included in prospectuses. We recommend that ESMA instead uses the test of materiality for risk factors outlined in Article 6(1) of the Prospectus Regulation.
- Quantitative information: Assessing a risk’s materiality can be extremely difficult given the uncertainty regarding the probability and timing of their occurrence. Requiring quantitative information on the potential impacts of a risk factor will therefore be particularly challenging for smaller issuers, whose risks are rapidly changing and evolving, and should therefore be removed from the guidelines. We note that the Level 1 text of the Prospectus Regulation only refers to "qualitative information" which may be disclosed to illustrate materiality – such information is not mandatory.
