The public offer platform – Engagement Paper 5

The Financial Conduct Authority (FCA) has published another so-called Engagement Paper in which the FCA seeks comments on the requirements of Public Offer Platforms which will be new entities allowed to facilitate the public offering of securities (besides trading venues) (please see EventID 22209 in this context for more information). Public Offer Platforms would primarily, but not exclusively, be platforms offering „crowdfunding“ services.
The engagement paper is part of a series of documents the FCA is publishing in an effort to establish the „new“ Public Offers and Admission to Trading regime which the regulator will be entitled to deliver (along an outlined framework) following the implementation of the Draft: Financial Services and Markets Act 2000 (Public Offers and Admissions to Trading) Regulations 2023 (POAT). Latter is expected shortly, following the enactment of the Financial Services and Markets Act 2023 (FSMA 2023) late June 2023.
In this engagement paper now, the FCA primarily seeks views on requirements pertaining to the due diligence obligations of platform operators and disclosures to be made by them and by the firms offering securities via the platform:
(1) due diligence obligations: The FCA suggests mandating platform operators to review an offering firm’s business registration and incorporation statement and to identify its directors, officers, and controllers which would help identify potential legal or financial risks associated with the company and give insights into its management and ownership structure.
Moreover, platform operators would be required to evaluate the fitness of senior management and key personnel, including checking for any previous disqualifications, as past disqualifications may indicate higher risks for the company’s future performance and reputation, and may help investors make thoughtful decisions.
Additionally, platform operators would be required to review the financial strength and past performance of companies seeking to offer securities via the platform. As far as start-ups are concerned, platform operators would be required to examine their financial projections. The examination of financial data will be crucial as it helps estimate a company’s potential value, identify risks or challenges, and compare its performance with industry peers.
Finally, platform operators would be mandated to examine a company’s business valuation, current borrowing levels, and the source of existing borrowing (if applicable) to „verify“ the fair value of the company which in turn helps to assess potential returns on the offered security and allows for comparisons with competitors.
The FCA also suggests that platform operators would have to draw up some sort of written report or „attestation“ in which they describe the due diligence operations they have performed for each company „listed“ on the platform.
(2) disclosures: The FCA suggests mandating platform operators to disclose some general information on the platform itself, such as the products and services offered by a platform, and about the general risks involved when taking advantage of a platform’s services. Furthermore, the FCA proposes platform operators to be obliged to disclose their policies and procedures, for instance with respect to the above noted due diligence practices or costs and fees charged. Finally, the FCA suggests that platform operators disclose all information on a company offering securities on its platform that are relevant for investors to make informed decisions. In this context, the FCA is contemplating on just stating this requirement without further specifying any related information or on requiring the disclosure of a disclosure document for each security offered on the platform which may include:
– general information on a company offering securities;
– financial information as regards the offeror;
– information on an offering firm’s business model; or
– information on the type of security, terms of investment, valuation, and exit strategies.
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The Engagement Paper also discusses some further requirements in relation to platform operators such as the authorization of platform operators or obligations with respect to liability and redress payments.