IOSCO publishes a report to help its members enhance SPAC regulations

IOSCO has released its FR06/23 Special Purpose Acquisition Companies report, with the intention of supporting IOSCO members in their evaluation and enhancement of their strategies pertaining to these corporations.
The report focuses on SPACs, which are publicly listed blank check companies that raise funds through an Initial Public Offering (IPO) to finance a merger or acquisition of a private operating company. The report outlines the regulatory frameworks for SPACs and compares them to those for traditional IPOs. It emphasizes the importance of adequate disclosure of information, gatekeeper responsibilities, and due diligence at the Business Combination stage. While SPACs may have some advantages and disadvantages compared to traditional IPOs, both result in the same outcome and share some key risks. Therefore, their regulatory treatment may be expected to be similar, but differences in their mechanics mean that the regulatory treatment of SPACs may need to be adapted appropriately.
One of the key takeaways from the report is that adequate disclosure of information is critical in bringing a private company onto the public markets. While most frameworks apply standard IPO prospectus/disclosure requirements, additional disclosure is often required for SPACs, especially regarding dilution. Once a target has been identified, most frameworks take steps to ensure that investors have sufficient information to make an informed decision on the Business Combination in the second stage of the process.
The report also discusses the gatekeeper responsibilities in the SPAC process, including underwriters, auditors, and brokers. These gatekeepers are responsible for ensuring the accuracy of disclosures, mitigating fraud or misrepresentations, and providing advice. However, the report emphasizes that SPACs do not provide a free pass for gatekeepers when it comes to liability.
Furthermore, the report explains that in most jurisdictions, SPACs are required to disclose relevant information on the Business Combination at the shareholders meeting. In some jurisdictions, an approved prospectus may be required if certain conditions are met, such as a new offer to the public or new shares being admitted to trading. Finally, the report notes that due diligence and gatekeeping at the Business Combination stage are also crucial, and parties involved in the SPAC process may be responsible and/or liable for certain aspects of the transaction.