ESMA Issues Technical Advice on Format and Content of Prospectuses: Focus on Proposed Deletion of Requirement to Include Accountants' or Auditors' Report in Prospectus Presenting Profit Forecast or Estimate, European Capital Markets Update

As noted above, the new Prospectus Regulation entered into force on 20 July 2017. Following a request for technical advice from the European Commission, the European Securities and Markets Authority ("ESMA") has published three draft technical advice papers, including one relating to the format and content of the prospectus.

The consultation on the draft technical advice has ended on 28 September 2017, and until ESMA has considered the submitted responses, this technical advice remains subject to change.

The ESMA draft technical advice contains several proposed changes, including an increased importance given to the use of proceeds section (requiring a more specific breakdown of how the funds will be employed).

One of the most significant changes for issuers which may arise from the ESMA draft technical advice is the removal of the obligation to provide an accountants' or auditors' report whenever a profit estimate or a profit forecast is presented in a prospectus.

Under the current regime, issuers may choose to include an outstanding profit forecast or estimate in a prospectus. However, where profit forecasts or profit estimates are included in a prospectus, there is currently a requirement to include a report of an independent accountant or auditor certifying that these forecasts or estimates have been established on the basis of the certain assumptions and that the accounting policies used are consistent with those used by the issuer to draw up its financial statements.

Pursuant to the proposed new regime, should an issuer choose to include a profit forecast or profit estimate, the profit forecast will need to be clear and unambiguous and contain a statement setting out the main assumptions on which the issuer has based its forecast or estimate. These assumptions should draw the investors' attention to those uncertain factors which could materially affect the outcome of the forecast or estimate.

This change of regulation could lead to a change in approach to prospectus disclosure, as issuers have traditionally been reluctant to make forward-looking statements in a prospectus, due to potential liability issues and the challenge, not to mention the cost, of providing an accountants' or auditors' report within a short time frame.