New European fundraising and IPO rules take the scissors to red tape

Oliver Gill
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Fundraising regulations have been cut (Source: Getty)

Firms eyeing a listing on the main market or those looking at raising extra capital will face less red tape under new European rules that come into force later this month.

Last Friday, European authorities increased the level at which firms listed on the main market must produce a prospectus for raising fresh equity from 10 per cent to 20 per cent of their market capitalisation. There is no such requirement on Aim-quoted firms.

The rules are to be enforced across Europe from 20 July. They follow a consultation by the Financial Conduct Authority (FCA) in March.

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With the average prospectus costing around £500,000, Association of Investment Companies public affairs director Guy Rainbird said of the move: “This is particularly helpful for smaller companies seeking to raise money without the cost and administrative slog of preparing a disclosure which many investors do not read or find particularly useful.

“At the same time, shareholders in the company retain control of whether or not it is able to issue further shares. It will still be incumbent on boards to explain why their proposal to raise funds deserves shareholder support.”

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However, Hargreaves Lansdown senior analyst Laith Khalaf said the level transparency would “not be materially different as the firms are already a regulated entity”.

Meanwhile, the changes will “level the playing field” between the Alternative Investment Market (Aim) and the main London market, according to Memery Crystal corporate partner Kieran Stone.

He said: “For many businesses looking to initial public offering, with a specific focus on regular fundraising over the next few years, this is a game changer.

“This regulation markedly closes the gap between AIM and the main market, making the latter a far more interesting proposition to a wider selection of companies.”

Dan Simons, a partner at law firm Hogan Lovells said the changes “must be in everybody's interests other than advisers because they're not getting paid".

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