Ashurst Quarterly Debt Capital Markets Update Q4 2024
14 January 2025
Welcome to the first edition of the Ashurst Quarterly Debt Capital Markets Update for 2025. In this edition we summarise the key developments in debt capital markets in the fourth quarter of 2024.
We have a number of different developments to report on in this edition:
- UK Digital Securities Sandbox – Bank of England and FCA open to applications
- Eurosystem Collateral Management System (ECMS)
- EU Prospectus Regulation - ESMA Call for Evidence on Prospectus Liability
- ESMA Consultation on Changes to the Format and Content of EU Prospectuses
- Settlement cycles in the EU for primary market and secondary market transactions
- EU Prospectus Regulation Revised
- ICMA publishes DLT Bonds Reference Guide
- Sustainable Finance - New EU Regulation on ESG rating activities
- UK PRIIPs Regulation to be replaced by the consumer composite investment (CCI) disclosure regime
UK Digital Securities Sandbox – Bank of England and FCA open to applications
On 30 September 2024, the Bank of England and the FCA published a joint policy statement (PS24/12), final guidance and other materials setting out their approach to implementing and operating the Digital Securities Sandbox (DSS).
From that date, the DSS, which is the first financial market infrastructure sandbox to be established under powers granted by the Financial Service and Markets Act 2023, has been open to applications. The DSS is a regime that will allow firms to use developing technologies, such as distributed ledger technology (DLT), in the issuance, trading and settlement of securities. Firms that successfully apply for the DSS will be able to operate under a set of rules and regulations that has been modified to facilitate this. The DSS lasts for five years and is intended to help regulators design a permanent technology friendly regime for the securities market.
Eurosystem Collateral Management System (ECMS)
The Eurosystem Collateral Management System (ECMS) is a unified system which is planned to replace the existing systems of the 20 national central banks (NCBs) for managing assets used as collateral in Eurosystem credit operations. Together with the other TARGET Services that the Eurosystem offers, the ECMS is designed to ensure that cash, securities and collateral flow freely across Europe. On 24 October 2024 the ECB’s Governing Council announced that the new ECMS will go live on 16 June 2025.
EU Prospectus Regulation - ESMA Call for Evidence on Prospectus Liability
On 8 October 2024 the Council of the EU formally adopted the package of measures known as the "Listing Act" which includes an amending Regulation which will amend the EU Prospectus Regulation (for more information on the Listing Act, see this Ashurst briefing). Amongst other things, the amending Regulation asks the European Commission to present a report on civil liability for information provided in securities prospectuses to the European Parliament and the Council by 31 December 2025. As a result, the Commission has requested ESMA's technical advice on this subject and on 28 October 2024, ESMA launched a Call for Evidence (CfE) to obtain feedback on the issue from market participants to respond to the Commission’s request. ESMA asked for all comments to be submitted by 31 December 2024.
ESMA Consultation on Changes to the Format and Content of EU Prospectuses
On 28 October 2024 ESMA published a consultation paper proposing amendments to the EU Prospectus Regulation regime with regard to the format and content of EU prospectuses. This is the first consultation from ESMA under the "Listing Act" amending Regulation (see above).
This ESMA consultation proposes, among other things (1) that the information in a prospectus will have to follow a prescribed order, (2) merging the separate Annexes to Commission Delegated Regulation (EU) 2019/980 for wholesale and retail non-equity securities into one set of Annexes for all "standard" non-equity securities and (3) detailed additional information that will need to be included in a prospectus for non-equity securities that are advertised as considering ESG factors or pursuing ESG objectives.
The consultation closed on 31 December 2024 and ESMA expects to publish its final technical advice in the second quarter of 2025. For more information, see this Ashurst briefing.
Settlement cycles in the EU for primary market and secondary market transactions
On 18 November 2024, ESMA published a report containing its assessment of the desirability of shortening of the settlement cycle for secondary market transactions in securities in the EU (ESMA74-2119945925-1969). Key points are:
- It appears clear to ESMA that the settlement cycle should be shortened to the first business day after the transaction has been executed (T+1).
- A settlement cycle shorter than that (that is, T+0) can be envisaged in the longer term - after T+1 has been achieved in the EU.
- The migration to T+1 should be achieved in Q4 2027.
The report also considered whether there would be a need to include in the legislative framework a specific deadline for the settlement of primary market transactions. However, nothing seems to indicate that this is required at this stage and indeed there are a number of reasons why it could have negative impact.
EU Prospectus Regulation Revised
With effect from 4 December 2024 a number of important amendments to the EU Prospectus Regulation took effect due to an amending Regulation which is part of the EU's "Listing Act" package (see above). In the context of non-equity securities, the most important changes will:
- Enable the incorporation by reference into a base prospectus of annual or interim financial information published after the date of the base prospectus.
- Prohibit risk factors that are generic or only serve as disclaimers.
- Restore the temporary amendments concerning prospectus supplements and their effects which applied through most of 2021 and 2022 in response to the Covid pandemic, including the extension of the period during which withdrawal rights may be exercised from two to three working days.
- Clarify that a supplement to a base prospectus may not be used to introduce to the programme a new type of security for which the necessary information has not already been included in that base prospectus.
- Extend exemptions for follow-on or "fungible" offerings and for shares resulting from the conversion or exchange of other securities.
For more information see this Ashurst briefing. This briefing describes not only the amendments that apply from 4 December 2024 but also a second set of amendments which will apply from 5 June 2026 (with some provisions relating to EU Growth issuance prospectuses and EU Follow-on prospectuses applying from 5 March 2026).
ICMA publishes DLT Bonds Reference Guide
On 11 December 2024 ICMA published a reference guide for Distributed Ledger Technology (DLT) based debt securities. The guide highlights considerations for the end-to-end lifecycle of DLT-based debt securities. It is designed for market practitioners, including both traditional DCM and digital asset functions, as well as a broader audience of market stakeholders. It comprises over 50 practical questions and serves as a reference point across the lifecycle of a DLT-based debt security.
Sustainable Finance - New EU Regulation on ESG rating activities
On 12 December 2024 the new EU Regulation on environmental, social and governance (ESG) rating activities (Regulation (EU) 2024/3005) was published in the Official Journal. The Regulation entered into force on 2 January 2025 and will apply from 2 July 2026. For more information, see this Ashurst briefing.
UK PRIIPs Regulation to be replaced by the consumer composite investment (CCI) disclosure regime
On 19 December 2024, the FCA launched its long-awaited consultation paper (CP24/30) on the new disclosure regime applicable to consumer composite investments (CCIs).
The CCI regime will take effect under the Consumer Composite Investments (Designated Activities) Regulations 2024 which were made in November 2024 and will enter into force when the UK PRIIPs Regulation is revoked, which is expected to be in the second half of 2025.
The new rules will be less prescriptive than the UK (and EU) PRIIPs Regulation rules and will put more of an emphasis on disclosure being appropriate for the investor and user-friendly. The prescriptive PRIIPs Regulation templates will not be required by the CCI regime. However, there will be an 18-month transition period after the CCI regime takes effect during which firms will be able to comply with the UK PRIIPs Regulation rules or the new CCI rules.
The FCA's proposed new rules will largely keep the boundaries of products which are, or may be, in-scope of the CCI regime unchanged when compared to the UK PRIIPs Regulation regime.
The consultation closes on 20 March 2025. For more information, see this Ashurst briefing.
