On 29 March 2019, the European Securities and Markets Authority (ESMA) published its final guidelines on how national competent authorities (NCAs) should review risk factors, as required by the Prospectus Regulation.

ESMA published a Consultation Paper in July 2018, containing draft guidelines on risk factors which NCAs should incorporate as part of their review practices when scrutinising and approving a prospectus following the full implementation of the Prospectus Regulation in July 2019. The final guidelines are included in Annex II of the ESMA document and incorporate comments received in the consultation period.

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.

The guidelines on risk factors are intended to assist NCAs in their review of risk factor disclosure.

The guidelines will be translated into the official EU languages and published on ESMA’s website. They will become effective two months after their publication on ESMA’s website in all the official languages.