The quality of the prospectuses submitted to the Financial Supervisory Authority (FIN-FSA) for scrutiny during spring 2024 was lower than previously, with prospectuses attracting more comments than usual. The FIN-FSA urges preparers of prospectuses to ensure that prospectuses submitted for scrutiny have been prepared carefully in compliance with applicable regulations and guidelines. Particular attention should be paid to issues related to the working capital statement in equity prospectuses.

In late spring 2024, FIN-FSA prospectus supervision had numerous prospectuses under scrutiny at the same time. In January–May, we received a total of 22 prospectuses for approval. Of the prospectuses, 10 were equity prospectuses and 12 were debt prospectuses. In April, we contacted preparers of prospectuses and urged them to pay attention to the quality of prospectuses to ensure that the prospectus review went smoothly. Some excellently prepared prospectuses were submitted to us for approval. Some of the prospectuses submitted for approval, however, were exceptionally poorly prepared or their quality otherwise did not meet the requirements. A draft prospectus submitted to the FIN-FSA for approval must be carefully prepared and should meet the requirements of the Prospectus Regulation on the date of the prospectus application. Certain financial information can exceptionally be submitted during the processing period of the application, if this has been separately agreed with the FIN-FSA before the submission of the application.

The FIN-FSA had many comments to make on a number of the prospectuses, and the comments on many equity prospectuses concerned the same type of issues related to the financial situation of the company. In this article, we highlight the issues that we wish preparers of prospectuses to pay attention to, so that the quality of the prospectuses submitted to us for approval in the future is more in line with the requirements of regulations and guidelines.

General information about prospectus scrutiny

The issuer is responsible for the information in the prospectus and for assessing the material risks associated with the company and the security in question. The FIN-FSA only approves prospectuses to the extent that they meet the requirements of completeness, comprehensibility and consistency as set out in the Prospectus Regulation¹.

• In terms of completeness, the FIN-FSA assesses whether the prospectus has been prepared in accordance with the correct content requirements and whether there is a need for pro forma information, for example.
• The assessment of comprehensibility covers, for example, whether the draft prospectus clearly describes the issuer’s business and whether the structure of the prospectus is clear.
• Consistency requires, for example, that the working capital statement is consistent with risk factors, the audit report, the use of proceeds, and the strategy published by the issuer and information on the financing of the strategy.

In accordance with ESMA Guidelines on prospectus scrutiny, we take a risk-based approach and target our prospectus supervision particularly at issues that are of greatest significance from the standpoint of investor protection.

Working capital statement and other material information

The most essential content of equity prospectuses includes the working capital statement, the use of the proceeds raised, a description of the financing arrangements, and the risks associated with the company’s financial situation. Our prospectus scrutiny focuses, in a risk-based manner, on these elements in particular. The significance of essential and adequate information is emphasised in a situation where the company’s working capital is insufficient for 12 months after the approval date of the prospectus. Situations related to the sufficiency of working capital vary from company to company, and the information included in the prospectus is always evaluated on a case-by-case basis.

The content requirements² of prospectuses and ESMA Guidelines³ must be followed when preparing texts regarding the working capital statement and the use of proceeds. When preparing descriptions of risk factors, the requirements of the Prospectus Regulation⁴ and ESMA Guidelines⁵ on risk factors must be followed. Prospectus texts must be mutually consistent. In addition, they must be consistent with the justifications of the working capital statement submitted to the FIN-FSA. For example, the amount of any shortfall in working capital stated in the prospectus, or the point in time at which working capital is estimated to be sufficient, must correspond to that which is presented in the calculations provided as justifications for the working capital statement.

Risks related to working capital position

The issuer itself assesses what the material risks related to the issuer and the security are as well as the direct effects of their possible realisation. The FIN-FSA, on the other hand, will challenge, in accordance with ESMA Guidelines, the descriptions of risk factors in the prospectus if a risk and its direct effects are not clearly described or the risks do not seem to be consistent from the perspective of the other information in the prospectus or the justifications of the working capital statement. If the company’s working capital is insufficient for the next 12 months and the continuity of the company’s operations is at risk, this has in practice generally been considered the most material risk to the financial position.

If a company does not have sufficient working capital, this generally also affects the risks associated with a share issue. If there are uncertainties about the realisation of all or part of a share issue, the risk factor description should explain the different situations that might arise and what the consequences of these would be. In particular, the situations in which an issue can be implemented with a lower amount than the working capital requirement should be described. Subscriptions made by the investors are binding, and they cannot cancel them at the point when it possibly becomes clear that the company did not manage to collect the necessary amount of funding for the working capital requirement. The prospectus should therefore clearly describe the risk that investors may end up investing in a company whose working capital will not be sufficient beyond a certain point in time.

Experiences of the quality of prospectuses in spring 2024

During this spring, exceptionally incomplete or poor quality equity prospectuses were submitted to the FIN-FSA for approval. The most material shortcomings concerned the description of companies’ financial position and to the financial information in prospectuses. In several cases, the most essential parts of the prospectus, such as the working capital statement and the associated risks, were almost completely reformulated after the FIN-FSA had commented on the prospectus. It is evident that the various situations of companies may be very challenging and that the guidelines have to be interpreted in practice. However, as nearly every equity prospectus required a large number of corrections to essential points, we would like to bring to the attention of preparers of prospectuses some of the aspects we have commented on, by way of example. We hope that these examples will help to improve the quality of prospectuses submitted for approval in the future.  

The FIN-FSA also drew attention to the fact that for some prospectuses many changes were also made during the scrutiny period to texts on which the FIN-FSA had not commented. In such situations, we also have to evaluate the consistency of the changed texts in relation to other information in the prospectus, which may also affect the length of the scrutiny period. As a rule, changes should be made to a prospectus during the scrutiny period only as a result of comments made by the FIN-FSA and aspects that have changed during the scrutiny period.

Examples of FIN-FSA comments on equity prospectuses

Share issue and amount of proceeds to be raised

Comments related to share issues and the amount of proceeds to be raised are often result from incomplete or inconsistent information in the prospectus. Examples of comments:

• What amount of proceeds is intended to be raised in the share issue? What is the net amount of proceeds to be raised?
• To what extent are the net proceeds to be raised by the share issue estimated to be sufficient?
• Can the share issue be implemented for a lower amount than that needed to cover the working capital deficit?
  • In that case, until when will the proceeds be sufficient?
  • In this situation, how does the company intend to raise additional funding or adjust its operations?
  • Has this been taken into account in the prospectus’ risk descriptions?

Use of proceeds

The FIN-FSA’s comments regarding the use of proceeds are generally based on the content requirement of the securities note “Reasons for the offer and use of proceeds”. Examples of comments:

• What is the estimated net amount of proceeds to be raised by the share issue?
• Are the planned uses presented in order of importance?
• Will the proceeds sought by the share issue be sufficient to finance all the planned uses? If not sufficient, what is the amount and sources of the other funding needed?
• Will the proceeds be used to pay or reduce debts? How much? Which loans are involved?

Working capital statement

The FIN-FSA’s comments regarding the working capital statement are generally based on the content requirements for prospectuses⁶, ESMA Guidelines⁷ and inconsistencies with the information given elsewhere in the prospectus or the justifications of the working capital statement. Examples of comments:

• The prospectus must clearly state whether or not the working capital (as required by the Prospectus Regulation) is sufficient.
• For how long will the company’s working capital be sufficient?
• Approximately, how large is the shortfall in working capital?
• How does the issuer intend to remedy the shortfall in working capital?
  • What are the proposed actions? (For example, renegotiation of credit, reducing discretionary investments, reviewing strategy or selling assets)
  • What is the timetable for the proposed actions and how certain is their success?
• What are the consequences of the failure of the proposed actions (for example: Is it likely that the issuer will go into administration or bankruptcy and, if so, when?).
• Why does the information in the prospectus differ from the calculations provided as justifications for the working capital statement?

Financial information in prospectuses

The FIN-FSA has made many comments on the financial information in most equity and debt prospectuses. The following comments, among others, were repeated during the spring:

• The summary must present all of the required⁸ financial performance measures.
• All financial performance measures presented in the summary must also be presented elsewhere in the prospectus.
• Where possible, the relevant risk descriptions should include quantitative information, e.g. the amount of variable interest rate loans, the amount of goodwill and the amount of outstanding debt.
• The sections on financial information must indicate which information is audited and which is not.
• The capitalisation and indebtedness table must be presented in accordance with the ESMA Guidelines⁹, with regard to both structure and content.
• With regard to alternative performance measures, the ESMA Guidelines¹⁰ should be followed, which means, in principle, means that the definitions, uses and reconciliations of the performance measures should be presented in the prospectus.
• The use of figures based on different accounting principles should be avoided, where possible, and attention should be paid to the comparability of financial figures. The presentation of information should be assessed to ensure it is no way misleading.
• Sufficient information should be provided about financing agreements and related terms and conditions, such as covenants.
• Pro forma financial information must be prepared in accordance with the regulatory framework¹¹ and the ESMA Guidelines¹². Particular attention should be paid to the clear presentation of tables and any pro forma adjustments made.

Other aspects related to prospectus applications

• We recommend that entities notify the FIN-FSA of all planned prospectus applications at the earliest possible stage.
• Prospectus applications should state the aspects essential for the scrutiny of the prospectus: for example, which aspects will be clarified after the application and added to the prospectus during the scrutiny period.
• It is recommended that reference lists be prepared to a sufficiently detailed level, according to the template formats¹³ available on the FIN-FSA’s website. It is also recommended that a reference list be prepared for the summary.
• If any of the information required according to the reference list is not applicable, this must be justified, unless it is obvious.
• Prospectuses must indicate the sources of information used, for example which market research is involved. If there is no source of information, but the views of the company’s management are involved, this should be mentioned in the body text of the prospectus.
• As a rule, changes should be made to a prospectus during the scrutiny period only as a result of  comments made by the FIN-FSA and aspects that have changed during the scrutiny period.
• If the prospectus is to be notified to another EEA state, this must be requested in the prospectus approval application. A more detailed notification timetable should be agreed with the FIN-FSA in advance.
• A prospectus cannot be freely amended after its approval; the text and format of the prospectus made available to the public must always be the same as in the original version approved by the FIN-FSA. If an error is found in the prospectus after it has been approved, the prospectus must either be supplemented or the error corrected.

Marketing material

The applicable regulations and guidelines must also be followed in the preparation of marketing material. Particular attention should be paid to ensuring that marketing material is consistent in all respects with the information in the prospectus. Supervision with regard to marketing material is mainly ex-post, and the FIN-FSA does not review marketing material in connection with prospectus scrutiny, except in certain situations (e.g. IPOs). Marketing material must be submitted to the FIN-FSA at the latest when marketing begins.

Prospectus scrutiny period 

In accordance with its established practice, the FIN-FSA has generally scrutinised prospectuses in their entirety within 10 or 20 working days. However, as the Prospectus Regulation allows, a new 10-day scrutiny period may start from the date of submission of a new version of the draft prospectus. The quality of the draft prospectus submitted to the FIN-FSA and the number of changes made to the draft may affect the scrutiny period. Naturally, an exceptional number of simultaneous prospectus applications may also mean that the FIN-FSA may use the longer scrutiny period allowed by the Prospectus Regulation. Preparers of prospectuses should anticipate this.

Guidelines

The FIN-FSA Regulations and instructions 6/2013 “Securities offerings and listings” was revoked on 31 March 2024 and the relevant guidelines and interpretations have been moved to the FIN-FSA website, where more detailed guidelines on prospectus applications and prospectus scrutiny are provided.

For further information, please contact:

• Marianne Demecs, Senior Supervisor, marianne.demecs(at)fiva.fi or tel. +358 9 183 5366
• Ossi Eräkivi, Chief Specialist, ossi.erakivi(at)fiva.fi or tel. +358 9 183 5262
• Jenni Granlund, Supervisor, jenni.granlund(at)fiva.fi or tel. +358 9 183 5470
• Anna Sahrakorpi, Senior Legal Advisor, anna.sahrakorpi(at)fiva.fi or tel. +358 9 183 5458
• Minna Toiviainen, Senior Supervisor, minna.toiviainen(at)fiva.fi or tel. +358 9 183 5219

¹ Commission Delegated Regulation (EU) 2019/980, Articles 36–38.
² Commission Delegated Regulation (EU) 2019/980, e.g. Annex 11, Items 3.1 Working capital statement and 3.4 Reasons for the offer and use of proceeds.
³ ESMA Guidelines on disclosure requirements under the Prospectus Regulation (ESMA32-382-1138), Section V.8. Working capital statements.
⁴ Prospectus Regulation (2017/1129), Article 16 Risk factors.
⁵ ESMA Guidelines on risk factors under the Prospectus Regulation (ESMA31-62-1293).
⁶ Commission Delegated Regulation (EU) 2019/980, e.g. Annex 11, Item 3.1: "Statement by the issuer that, in its opinion, the working capital is sufficient for the issuer’s present requirements or, if not, how it proposes to provide the additional working capital needed.”
⁷ ESMA Guidelines on disclosure requirements under the Prospectus Regulation (ESMA32-382-1138), Section V.8. Working capital statements.
⁸ Commission Delegated Regulation (EU) 2019/979, Article 9 Format of the key financial information in the summary of a prospectus and Annexes I-IV.
⁹ ESMA Guidelines on disclosure requirements under the Prospectus Regulation (ESMA32-382-1138), Section V.9. Capitalisation and indebtedness.
¹⁰ ESMA Guidelines on Alternative Performance Measures (ESMA/2015/1415).
¹¹ Commission Delegated Regulation (EU) 2019/980, Annex 20.
¹² ESMA Guidelines on disclosure requirements under the Prospectus Regulation (ESMA32-382-1138), Section V.6. Pro forma financial information.
¹³ Offering of securities and prospectuses - Issuers and investors - www.finanssivalvonta.fi: Prospectuses and prospectus scrutiny - How to seek approval for a prospectus?