On 10 September 2019, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) published an explanatory note (Merkblatt) on the examination of the comprehensibility of securities prospectuses.
With the Explanatory Note, BaFin provides its initial view on how the new European requirements for the examination of prospectuses with regard to their comprehensibility will be applied in practice.
The guidance is intended to assist market participants in the preparation of comprehensible prospectuses and thus contribute to an efficient prospectus review process.
The basis to this is Delegated Regulation (EU) 2019/980 to the EU Prospectus Regulation, which is in force since 21 July 2019. The Explanatory Note explains how BaFin takes into account certain requirements, which are regarded as particularly important, within the framework of the comprehensibility test. This includes in particular:
- a clearly structured table of contents which, among other things, enables information on various products to be found in base prospectuses
- avoidance of a too modular structure of base prospectuses for a large number of very different products, clearly recognisable delimitation and recognisability of the different products in the prospectus
- a brief explanation of the functionality and structure of a base prospectus and its elements, including the final terms
- the use of clear and comprehensible language, and
- the inclusion of sample calculations/sample scenarios to describe the functioning of derivative securities, including graphical illustrations.
