Related provisions for PERG 9.7.1
Sections 292(3) and 292(4) state:
2Section 292(3) |
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The requirements are that- |
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(a) |
investors are afforded protection equivalent to that which they would be afforded if the body concerned were required to comply withrecognition requirements; |
(b) |
there are adequate procedures for dealing with a person who is unable, or likely to become unable, to meet his obligations in respect of one or more market contracts connected with the [ROIE] or [ROCH]; |
(c) |
the applicant is able and willing to co-operate with the[FSA] by the sharing of information and in other ways; and |
(d) |
adequate arrangements exist for co-operation between the[FSA] and those responsible for the supervision of the applicant in the country or territory in which the applicant's head office is situated. |
Section 292(4) |
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In considering whether it is satisfied as to the requirements mentioned in subsections (3)(a) and (b), the[FSA] is to have regard to- |
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(a) |
the relevant law and practice of the country or territory in which the applicant's head office is situated; |
(b) |
the rules and practices of the applicant. |
1Note: The following definitions relevant to the prospectus rules are extracted from the Glossary.
Act |
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admission to trading |
admission to trading on a regulated market. |
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advertisement |
(as defined in the PD Regulation) announcements: |
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(1) |
relating to a specific offer to the public of securities or to an admission to trading on a regulated market; and |
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(2) |
aiming to specifically promote the potential subscription or acquisition of securities.4 |
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applicant |
an applicant for approval of a prospectus or supplementary prospectus relating to transferable securities. |
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asset backed security |
(as defined in the PD Regulation) securities which: |
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(1) |
represent an interest in assets, including any rights intended to assure servicing, or the receipt or timeliness of receipts by holders of assets of amounts payable thereunder; or |
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(2) |
are secured by assets and the terms of which provide for payments which relate to payments or reasonable projections of payments calculated by reference to identified or identifiable assets. |
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base prospectus |
a base prospectus referred to in PR 2.2.7 R. |
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body corporate |
(in accordance with section 417(1) of the Act (Definitions) any body corporate, including a body corporate constituted under the law of a country or territory outside the United Kingdom; |
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building block |
(as defined in the PD Regulation) a list of additional information requirements, not included in one of the schedules, to be added to one or more schedules, as the case may be, depending on the type of instrument and/or transaction for which a prospectus or base prospectus is drawn up.4 |
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CESR recommendations |
the recommendations for the consistent implementation of the European Commission's Regulation on Prospectuses no 809/2004 published by the Committee of European Securities Regulators. |
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collective investment undertaking other than the closed-end type |
(in PR) (as defined in Article 2.1(o) of the prospectus directive) unit trusts and investment companies: |
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(1) |
the object of which is the collective investment of capital provided by the public, and which operate on the principle of risk-spreading; |
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(2) |
the units of which are, at the holder's request, repurchased or redeemed, directly or indirectly, out of the assets of these undertakings.4 |
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any body corporate. |
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Consolidated Admissions and Reporting Directive |
Directive 2001/34/EC of the European Parliament and of the Council on the admission of securities to official stock exchange listing and on information to be published on those securities. |
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credit institution |
as defined in article 1(1) of the Banking Consolidation Directive. |
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director |
(in accordance with section 417(1)(a) of the Act) a person occupying in relation to it the position of a director (by whatever name called) and, in relation to an issuer which is not a body corporate, a person with corresponding powers and duties. |
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EEA State |
(in accordance with paragraph 8 of Schedule 3 to the Act (EEA Passport Rights)) a State which is a contracting party to the agreement on the European Economic Area signed at Oporto on 2 May 1992, as it has effect for the time being; as at 1 May 2004, the following are the EEA States: Austria, Belgium, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden and the United Kingdom. |
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equity security |
(as defined in Article 2.1(b) of the prospectus directive) shares and other transferable securities equivalent to shares in companies, as well as any other type of transferable securities giving the right to acquire any of the aforementioned securities as a consequence of their being converted or the rights conferred by them being exercised, provided that securities of the latter type are issued by the issuer of the underlying shares or by an entity belonging to the group of the said issuer. |
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equity share |
shares comprised in a company'sequity share capital. |
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equity share capital |
(for a company), its issued share capital excluding any part of that capital which, neither as respects dividends nor as respects capital, carries any right to participate beyond a specified amount in a distribution. |
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executive procedures |
the procedures relating to the giving of warning notices, decision notices and supervisory notices that are described in DEPP 4 (Decision by FSA staff under executive procedures)2. 22 |
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FSA |
the Financial Services Authority. |
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guarantee |
(as defined in the PD Regulation) any arrangement intended to ensure that any obligation material to the issue will be duly serviced, whether in the form of guarantee, surety, keep well agreement, mono-line insurance policy or other equivalent commitment. |
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guarantor |
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Home State or Home Member State |
(as defined in section 102C of the Act) in relation to an issuer of transferable securities, the EEA State which is the "home Member State" for the purposes of the prospectus directive (which is to be determined in accordance with Article 2.1(m) of that directive). |
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Host State or Host Member State |
(as defined in Article 2.1(n) of the prospectus directive) the EEA State where an offer to the public is made or admission to trading is sought, when different from the home State. |
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| 3 | [deleted]3 3 |
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| 3 | [deleted]3 3 |
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issuer |
(as defined in section 102A of the Act) a legal person who issues or proposes to issue the transferable securities in question.4 |
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(in PR) (as defined in section 87A(9) and (10) of the Act) the information which is essential to enable investors to understand the transferable securities to which the prospectus relates and decide whether to consider the offer further. The key information must include: |
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(a) |
the essential characteristics of, and risks associated with, the issuer and any guarantor, including their assets, liabilities and financial positions; |
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(b) |
the essential characteristics of, and risks associated with, investment in the transferable securities, including any rights attaching to the securities; |
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(c) |
the general terms of the offer, including an estimate of the expenses charged to an investor by the issuer and the offeror, if not the issuer; |
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(d) |
details of the admission to trading; and |
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(e) |
the reasons for the offer and proposed use of the proceeds. |
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The European Parliament and Council Directive on markets in financial instruments (No. 2004/39/EC). See also MiFID Regulation and MiFID implementing Directive.3 |
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non-equity transferable securities |
(as defined in section 102A of the Act) all transferable securities that are not equity securities. |
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Note: In the prospectus directive and the PD Regulation, the Commission uses the term "non-equity securities" rather than "non-equity transferable securities". |
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offer |
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offer of transferable securities to the public |
(as defined in section 102B of the Act), in summary: |
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(a) |
a communication to any person which presents sufficient information on:
to enable an investor to decide to buy or subscribe for the securities in question; |
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(b) |
which is made in any form or by any means; |
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(c) |
including the placing of securities through a financial intermediary; |
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(d) |
but not including a communication in connection with trading on:
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Note: This is only a summary, to see the full text of the definition, readers should consult section 102B of the Act. |
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offering programme |
(as defined in Article 2.1(k) of the prospectus directive) a plan which would permit the issuance of non-equity securities, including warrants in any form, having a similar type and/or class, in a continuous or repeated manner during a specified issuing period. |
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offeror |
a person who makes an offer of transferable securities to the public. |
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overseas company |
a company incorporated outside the United Kingdom. |
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Part 6 rules |
(in accordance with section 73A(1) of the Act), rules made for the purposes of Part 6 of the Act. |
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PD |
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PD Regulation |
Regulation number 809/2004 of the European Commission. |
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person |
(in accordance with the Interpretation Act 1978) any person, including a body of persons corporate or unincorporated that is, a natural person, a legal person and, for example, a partnership). |
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PR |
the Prospectus Rules sourcebook. |
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profit estimate |
(as defined in the PD Regulation) a profit forecast for a financial period which has expired and for which results have not yet been published. |
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profit forecast |
(as defined in the PD Regulation) a form of words which expressly states or by implication indicates a figure or a minimum or maximum figure for the likely level of profits or losses for the current financial period and/or financial periods subsequent to that period, or contains data from which a calculation of such a figure for future profits or losses may be made, even if no particular figure is mentioned and the word "profit" is not used. |
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property collective investment undertaking |
(as defined in the PD Regulation) a collective investment undertaking whose investment objective is the participation in the holding of property in the long term. |
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prospectus |
a prospectus required under the prospectus directive. |
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prospectus directive |
the Directive of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading (No 2003/71/EC). |
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Prospectus Rules |
(as defined in section 73A(4) of the Act) rules expressed to relate to transferable securities. |
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Public international body |
(as defined in the PD Regulation) a legal entity of public nature established by an international treaty between sovereign States and of which one or more Member States are members. |
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qualified investor |
(as defined in section 86(7) of the Act) in relation to an offer of transferable securities:4 |
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(a) |
a person or entity described in points (1) to (4) of Section I of Annex II to MiFID, other than a person who, before the making of the offer, has agreed in writing with the relevant firm (or each of the relevant firms) to be treated as a non-professional client in accordance with MiFID; or4 4 |
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(b) |
a person who has made a request to one or more relevant firms to be treated as a professional client in accordance with Section II of Annex II to MiFID and has not subsequently, but before the making of the offer, agreed in writing with the relevant firm (or each of the relevant firms) to be treated as a non-professional client in accordance with the final paragraph of Section I of Annex II of MiFID; or4 4 |
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(c) |
a person who is recognised as an eligible counterparty in accordance with article 24 of MiFID and has not, before the making of the offer, agreed in writing with the relevant firm (or each of the relevant firms) to be treated as a non-professional client in accordance with the final paragraph of Section I of Annex II of MiFID; or4 4 |
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(d) |
a person whom any relevant firm is authorised to continue to treat as a professional client in accordance with article 71(6) of MiFID.4 |
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registration document |
a registration document referred to in PR 2.2.2 R. |
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regulated information |
(as defined in the PD Regulation) all information which the issuer, or any person who has applied for the admission of securities to trading on a regulated market without the issuer’s consent, is required to disclose under Directive 2001/34/EC or under Article 6 of Directive 2003/6/EC.3 |
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regulated market |
a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments in the system and in accordance with its non-discretionary rules in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with the provisions of Title III of MiFID.3 |
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RIS |
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risk factors |
(as defined in the PD Regulation) a list of risks which are specific to the situation of the issuer and/or the securities and which are material for taking investment decisions. |
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rule |
(in accordance with section 417(1) of the Act (Definitions)) a rule made by the FSA under the Act. |
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schedule |
(as defined in the PD Regulation) a list of minimum information requirements adapted to the particular nature of the different types of issuers and/or the different securities involved. |
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securities issued in a continuous and repeated manner |
(as defined in Article 2.1(l) of the prospectus directive) issues on tap or at least two separate issues of securities of a similar type and/or class over a period of 12 months. |
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securities note |
a securities note referred to in PR 2.2.2 R. |
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small and medium-sized enterprise |
(as defined in Article 2.1(f) of the prospectus directive) companies, which, according to their last annual or consolidated accounts, meet at least two of the following three criteria: an average number of employees during the financial year of less than 250, a total balance sheet not exceeding €43,000,000 and an annual net turnover not exceeding €50,000,000. |
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special purpose vehicle |
(as defined in the PD Regulation) an issuer whose objects and purposes are primarily the issue of securities. |
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statutory notice associated decision |
a decision which is made by the FSA and which is associated with a decision to give a statutory notice, including a decision: |
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statutory notice decision |
a decision by the FSA on whether or not to give a statutory notice. |
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(a) |
to determine or extend the period for making representations; |
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(b) |
to determine whether a copy of the statutory notice needs to be given to any third party and the period for him to make representations; |
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(c) |
to refuse access to FSA material; |
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(d) |
as to the information which it is appropriate to publish about the matter to which a final notice or an effective supervisory notice relates. |
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summary |
(in relation to a prospectus) the summary included in the prospectus. |
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supplementary prospectus |
a supplementary prospectus containing details of a new factor, mistake or inaccuracy. |
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transferable security |
(as defined in section 102A of the Act) anything which is a transferable security for the purposes of MiFID3, other than money-market instruments for the purposes of that directive which have a maturity of less than 12 months. 3 |
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Note: In the prospectus directive and PD regulation, the Commission uses the term "security" rather than "transferable security". |
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umbrella collective investment scheme |
(as defined in the PD Regulation) a collective investment undertaking invested in one or more collective investment undertakings, the asset of which is composed of separate class(es) or designation(s) of securities. |
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United Kingdom |
England and Wales, Scotland and Northern Ireland (but not the Channel Islands or the Isle of Man). |
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units of a collective investment scheme |
(as defined in Article 2.1(p) of the prospectus directive) securities issued by a collective investment undertaking as representing the rights of the participants in such an undertaking over its assets. |
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working day |
(as defined in section 103 of the Act) any day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday under the Banking and Financial Dealings Act 1971 in any part of the United Kingdom. |
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Example 8 |
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Term extends beyond retirement age and policy reconstruction |
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Background |
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45 year old male non-smoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th policy anniversary. |
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It has always been the intention of the complainant to retire at State retirement age 65. |
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Term from date of sale to retirement is 20 years and the maturity date of the mortgage is 5 years after retirement. |
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Established facts |
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Established premium paid by investor on policy of original term (25 years): |
£81.20 |
Premium that would have been payable on policy with term from sale to retirement (20 years): |
£111.20 |
Actual policy value at time complaint assessed: |
£12,500 |
Value of an equivalent 20-year policy at time complaint assessed: |
£21,300 |
Difference in policy values at time complaint assessed: |
£8,800 |
£4,320 |
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Basis of compensation |
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The policy is reconstructed as if it had been set up originally on a term to mature at retirement age, in this example, a term of 20 years. The difference in the current value of the policy actually sold to the complainant and the current value of the reconstructed policy, as if the premium on the reconstructed policy had been paid from outset, is calculated. The complainant has gained from lower outgoings (lower premiums) of the actual endowment policy to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. |
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Redress generally if it is not unreasonable to take account of the whole of the gain from lower outgoings |
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Loss from current value of reconstructed policy less current value of actual policy: |
(£8,800) |
Gain from total lower outgoings under actual policy: |
£4,320 |
Net loss: |
(£4,480) |
Therefore total redress is: |
£4,480 |
Redress if it is unreasonable to take account of gain from lower outgoings |
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Loss from current value of reconstructed policy less current value of actual policy: |
(£8,800) |
Gain from total lower outgoings under actual policy: |
Ignored |
Therefore total redress is: |
£8,800 |
Additional Information |
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If the policy is capable of reconstruction, the complainant must now fund the higher premiums himself for the remainder of the term of the shortened policy until maturity. In this example the higher premium could be £111.20. However the firm should provide the complainant with a reprojection letter based on the reconstructed policy such that the actual monthly payment required to achieve the target sum could be even higher, say £130. The reprojection letter should set out the range of options facing the complainant to deal with the projected shortfall, if any. |
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Sections 85 and 86 of the Act provide for when a prospectus approved by the FSA will be required:
85 |
(1) |
It is unlawful for transferable securities to which this subsection applies to be offered to the public in the United Kingdom unless an approved prospectus has been made available to the public before the offer is made. |
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(2) |
It is unlawful to request the admission of transferable securities to which this subsection applies to trading on a regulated market situated or operating in the United Kingdom unless an approved prospectus has been made available to the public before the request is made. |
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(3) |
A person who contravenes subsection (1) or (2) is guilty of an offence and liable – |
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(a) |
on summary conviction, to imprisonment for a term not exceeding 3 months or a fine not exceeding the statutory maximum or both; |
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(b) |
on conviction on indictment, to imprisonment for a term not exceeding 2 years or a fine or both. |
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(4) |
A contravention of subsection (1) or (2) is actionable, at the suit of a person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty. |
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(5) |
Subsection (1) applies to all transferable securities other than – |
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(a) |
those listed in Schedule 11A; |
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(b) |
such other transferable securities as may be specified in prospectus rules [see PR 1.2.2 R]. |
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(6) |
Subsection (2) applies to all transferable securities other than – |
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(a) |
those listed in Part 1 of Schedule 11A; |
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(b) |
such other transferable securities as may be specified in prospectus rules [see PR 1.2.3 R]. |
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(7) |
"Approved prospectus" means, in relation to transferable securities to which this section applies, a prospectus approved by the competent authority of the home State in relation to the issuer of the securities. |
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86 |
Exempt offers to the public |
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(1) |
A person does not contravene section 85(1) if – |
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(a) |
the offer is made to or directed at qualified investors only; |
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(b) |
the offer is made to or directed at fewer than 1502 persons, other than qualified investors, per EEA State; |
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(c) |
the minimum consideration which may be paid by any person for transferable securities acquired by him pursuant to the offer is at least 100,0003 euros (or an equivalent amount); 3 |
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(d) |
the transferable securities being offered are denominated in amounts of at least 100,0003 euros (or equivalent amounts); 33 |
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(e) |
the total consideration for the transferable securities being offered in the EEA states3 cannot exceed 100,000 euros (or an equivalent amount); or3 3 |
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3(f) |
the offer falls within subsection (1A). |
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3(1A) |
An offer (“the current offer”) falls within this subsection where transferable securities are resold or placed through a financial intermediary where: |
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3(a) |
the transferable securities have previously been the subject of one or more offers to the public; |
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3(b) |
in respect of one or more of those previous offers, any of paragraphs (a) to (e) of subsection (1) applied; |
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3(c) |
a prospectus is available for the securities which has been approved by a competent authority no earlier than 12 months before the date the current offer is made; and |
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3(d) |
the issuer or other person who was responsible for drawing up the prospectus has given written consent to the use of the prospectus for the purpose of the current offer. |
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(2) |
Where - |
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(a) |
a person who is not a qualified investor ("the client") has engaged a qualified investor falling within point (1) of Section 1 of Annex II to the markets in financial instruments directive3 to act as his agent; and 3 |
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(b) |
the terms on which the qualified investor is engaged enable him to make decisions concerning the acceptance of offers of transferable securities on the client's behalf without reference to the client, |
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an offer made to or directed at the qualified investor is not to be regarded for the purposes of subsection (1) as also having been made to or directed at the client. |
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(3) |
For the purposes of subsection (1)(b), the making of an offer of transferable securities to – |
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(a) |
trustees of a trust, |
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(b) |
members of a partnership in their capacity as such, or |
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(c) |
two or more persons jointly, |
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is to be treated as the making of an offer to a single person. |
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(4) |
In determining whether subsection (1)(e) is satisfied in relation to an offer ("offer A"), offer A is to be taken together with any other offer of transferable securities of the same class made by the same person which – |
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(a) |
was open at any time within the period of 12 months ending with the date on which offer A is first made; and |
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(b) |
had previously satisfied subsection (1)(e). |
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(5) |
For the purposes of this section, an amount (in relation to an amount denominated in euros) is an "equivalent amount" if it is an amount of equal value denominated wholly or partly in another currency or unit of account. |
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(6) |
The equivalent is to be calculated at the latest practicable date before (but in any event not more than 3 working days before) the date on which the offer is first made. |
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(7) |
"Qualified investor" in relation to an offer of transferable securities,3 means – |
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(a) |
a person described in points (1) to (4) of Section I of Annex II to the markets in financial instruments directive, other than a person who, before the making of the offer, has agreed in writing with the relevant firm (or each of the relevant firms) to be treated as a non-professional client in accordance with the final paragraph of Section I of Annex II to that directive;3 3 |
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(b) |
a person who has made a request to one or more relevant firms to be treated as a professional client in accordance with Section II of Annex II to that directive and has not subsequently, but before the making of the offer, agreed in writing with that relevant firm (or each of those relevant firms) to be treated as a non-professional client in accordance with the final paragraph of Section I of Annex II to that directive;3 3 |
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(c) |
a person who is recognised as an eligible counterparty in accordance with article 24 of that directive and has not, before the making of the offer, agreed in writing with the relevant firm (or each of the relevant firms) to be treated as a non-professional client in accordance with the final paragraph of Section I of Annex II of that directive;3 3 |
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3(d) |
a person whom any relevant firm is authorised to continue to treat as a professional client in accordance with article 71(6) of that directive. |
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3(8) |
In subsection (7) “relevant firm” means an investment firm or credit institution acting in connection with the offer. |
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3(9) |
Investment firms and credit institutions must communicate their classification of their clients as being or not being qualified investors on request to an issuer, subject to complying with the Data Protection Act 1998 or any directly applicable EU legislation relating to data protection. |
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3(10) |
In subsections (8) and (9) - “credit institution” means - (a) a credit institution authorised under the banking consolidation directive; or (b) an institution which would satisfy the requirements for authorisation as a credit institution under that directive if it had its registered office (or if it does not have one, its head office) in an EEA State. |
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