Final EU Guidelines on Disclosure of Risk Factors in Prospectuses

The European Securities and Markets Authority has published final guidelines on how national regulators should review risk factors as required by the new Prospectus Regulation. The guidelines aim to encourage more appropriate, focused and streamlined risk factor disclosures for securities. 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;
• the issuer’s business activities and industry;
• legal and regulatory risk;
• internal control risk; and
• environmental, social and governance risks.

Amendments to the guidelines include:

• Clarification about national regulator's role, which includes ensuring that the specificity of any risk factor is clear from the particular disclosure, and clarifying what is expected when issuers operate in the same industry and seem to be exposed to the same risks;
• Guideline 3 on materiality has been amended to clarify that a national regulator must ensure that the materiality of the risk factor is clear from the disclosure, and clarifying the steps they should take where materiality is not evident;
• Guideline 4 on quantitative information has been inserted to provide that, where information has already been published, it should be included, if appropriate, to illustrate the potential negative impact. The new guidelines also acknowledge that it is not always appropriate to include quantitative information. If qualitative information is included, national regulators should ensure the materiality of the risk factor is evident from its disclosure; and
• Guideline 6 to clarify that national regulators need to ensure that the materiality and specificity of the risk factor is corroborated by the overall picture presented by the prospectus.

More generic amendments have been made to the way guidelines are presented, including the movement of examples to an appendix, the removal of references to non-approval of prospectuses where the materiality or specificity of a risk factor is unclear, and the insertion of explanatory text in the background section about how the process of approving the prospectuses should be conducted.

The Guidelines will apply two months after they have been translated into the EU official languages and published on ESMA's website.

View the final Guidelines. 

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