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ESMA clarifies format for disclosure of risk factors in prospectuses

The European Securities and Markets Authority (ESMA) has published its final guidelines on how national competent authorities (NCAs) should review risk factors, as required by the new Prospectus Regulation (PR).

Article also available in : English | français

The guidelines aim to encourage more appropriate, focused and streamlined risk factor disclosures for securities, which is presented in an easy to analyse, concise and comprehensible form.

The purpose of including risk factors in a prospectus is to ensure that investors can assess the risks related to their investment, therefore allowing them to make informed investment decisions. Risk factors generally include information concerning:

the issuer’s financial situation;
the nature of the security or its underlying;
the issuer’s business activities and industry;
legal and regulatory risk;
internal control risk; and
environmental, social and governance risks.

Steven Maijoor, Chair, said: “Our guidelines aim to improve risk factor disclosures in prospectuses by ensuring that only risks which are material, specific and corroborated by the content of the prospectus are included. Although the guidelines are addressed to national securities regulators, issuers preparing a prospectus should take them into account to ensure a smooth prospectus approval.

“The guidelines will strengthen supervisory convergence, investor protection and market confidence, through a harmonised approach to reviewing risk factors and ensuring that investors have a clear understanding of the risks they may incur when investing in securities.”

The guidelines on risk factors will assist NCAs in their review of risk factor disclosure.

Next steps

In 2019, ESMA will focus on the consistency of application of the guidelines on risk factors by national competent authorities.

Next Finance , April 2019

Article also available in : English | français

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