FCA publishes final rules to reinforce investor protection in SPACs
28 July 2021 UK
Image: denisismagilov/stock.adobe.com
The Financial Conduct Authority (FCA) has published the final rules and changes regarding investor protection in special purpose acquisition companies (SPACs).
On 30 April, the FCA consulted on proposals to remove the presumption of suspension for SPACs that meet certain criteria.
The proposed changes were designed to provide an alternative approach for SPACs that must provide detailed information about a proposed target to the market to avoid being suspended.
The FCA warns investors that SPACs remain a complex investment and that they must assess and understand the associated risks before investing. This includes assessing the capital structure, the risk of conflicts of interest, dilution from shares allocated to sponsors, and the potential value and return prospects of any proposed acquisition target.
Additional investor safeguards that the FCA will require SPACs to provide in order to benefit from the alternative approach include:
- a ‘redemption’ option allowing investors to exit a SPAC prior to any acquisition being completed
- ensuring money raised from public shareholders is ring-fenced
- requiring shareholder approval for any proposed acquisition
- a time limit on a SPAC’s operating period if no acquisition is completed
SPAC issuers unable to meet the conditions, or those choosing not to, will continue to be subject to a presumption of suspension.
The final rules aim to provide more flexibility to larger SPACs, provided they embed certain features that promote investor protection and the smooth operation of markets.
The main changes the FCA has made to its original proposals are to:
- Lower the minimum amount a SPAC would need to raise at initial listing from £200 million to £100 million.
- Introduce an option to extend the proposed 2-year time-limited operating period (or 3-year period if shareholders have approved a 12-month extension) by 6 months, without the need to get shareholder approval. The additional 6 months will only be available in limited circumstances. This is intended to provide more time for a SPAC to conclude a deal where a transaction is well advanced.
- Modify its supervisory approach to provide more comfort prior to admission to listing that an issuer is within the guidance which disapplies the presumption of suspension.
The new rule guidance will come into effect as of 10 August 2021.
On 30 April, the FCA consulted on proposals to remove the presumption of suspension for SPACs that meet certain criteria.
The proposed changes were designed to provide an alternative approach for SPACs that must provide detailed information about a proposed target to the market to avoid being suspended.
The FCA warns investors that SPACs remain a complex investment and that they must assess and understand the associated risks before investing. This includes assessing the capital structure, the risk of conflicts of interest, dilution from shares allocated to sponsors, and the potential value and return prospects of any proposed acquisition target.
Additional investor safeguards that the FCA will require SPACs to provide in order to benefit from the alternative approach include:
- a ‘redemption’ option allowing investors to exit a SPAC prior to any acquisition being completed
- ensuring money raised from public shareholders is ring-fenced
- requiring shareholder approval for any proposed acquisition
- a time limit on a SPAC’s operating period if no acquisition is completed
SPAC issuers unable to meet the conditions, or those choosing not to, will continue to be subject to a presumption of suspension.
The final rules aim to provide more flexibility to larger SPACs, provided they embed certain features that promote investor protection and the smooth operation of markets.
The main changes the FCA has made to its original proposals are to:
- Lower the minimum amount a SPAC would need to raise at initial listing from £200 million to £100 million.
- Introduce an option to extend the proposed 2-year time-limited operating period (or 3-year period if shareholders have approved a 12-month extension) by 6 months, without the need to get shareholder approval. The additional 6 months will only be available in limited circumstances. This is intended to provide more time for a SPAC to conclude a deal where a transaction is well advanced.
- Modify its supervisory approach to provide more comfort prior to admission to listing that an issuer is within the guidance which disapplies the presumption of suspension.
The new rule guidance will come into effect as of 10 August 2021.
Next regulation article →
Inadequacies of middle-office resulting in settlement failures, survey finds
Inadequacies of middle-office resulting in settlement failures, survey finds
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
