Keith Mack
US securities laws are broadly construed and often apply to offerings made outside of the United States. This means that US securities laws technically apply to every capital-raising transaction conducted in the UK or Europe, even if there is no clear US nexus. The UK has the largest cohort of SEC-registered firms outside the US, and the SEC continues to visit the UK to perform in-person inspections. In the UK, the FCA is the main regulator for investor protection, and while the SEC and FCA regulatory frameworks differ, they share common high-level philosophies. Understanding US securities laws is important for issuers who want to offer securities to US investors, as they must be registered with the US Securities and Exchange Commission (SEC) before they are offered or sold.
| Characteristics | Values |
|---|---|
| US securities laws application in the UK | Technically, US securities laws apply to every capital-raising transaction in the UK |
| Securities Act | All securities must be registered with the US Securities and Exchange Commission (SEC) before they are offered or sold to US investors |
| Regulation S | Provides an exemption for sales outside the US, which means they are not subject to the registration requirements of the Securities Act |
| Rule 802 | Debt securities issued under this exemption are exempt from the Trust Indenture Act |
| FCA | The UK's Financial Conduct Authority is a principles-based regulator with 12 principles for business that act as a code of conduct for regulated firms |
| SEC | The US Securities and Exchange Commission regulates and enforces federal securities laws |
| Blue Sky Laws | Each US state has its own securities regulator that enforces "blue sky" laws, which companies must comply with when offering securities |
| Anti-fraud provisions | The US securities regulator has anti-fraud provisions that support high-level ethical standards |
| Bail-in exemption | In the event of a bail-in, there are likely exemptions from the registration requirements under US securities laws |
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What You'll Learn
- US securities laws apply to all capital raising transactions in the UK
- The UK has the largest number of SEC-registered firms outside the US
- The SEC enforces federal securities laws, but each state has its own securities regulator
- US securities laws require full and fair disclosure in connection with securities offerings
- US securities laws apply to UK schemes of arrangement involving restructuring of securities
US securities laws apply to all capital raising transactions in the UK
US securities laws apply to all capital-raising transactions in the UK, even if there is no clear US nexus. This is because the US is the world's largest capital market and a significant potential source of funding for issuers. As such, many issuers with a primary listing in the UK or Europe want to be able to offer securities to US investors.
The US Securities Act of 1933, as amended (Securities Act), requires that all securities must be registered with the US Securities and Exchange Commission (SEC) before they are offered or sold to US investors. The SEC enforces federal securities laws, and each state has its own securities regulator that enforces "blue sky" laws. Companies must comply with both federal and state regulations in the states where securities are offered and sold.
While the UK has its own securities regulations and the Financial Conduct Authority (FCA) to enforce them, the FCA and the SEC share similar regulatory philosophies and priorities, including investor protection. The FCA is a principles-based regulator with 12 principles that act as a code of conduct for regulated firms, while the SEC has antifraud provisions that support the same aims as the FCA principles.
Issuers in the UK seeking to offer securities to US investors must carefully navigate both US and UK securities laws and regulations to ensure compliance. They must also consider the advantages and disadvantages of various exemptions from registration requirements, such as Regulation S and Rule 802, which provide safe harbour guidelines for offerings deemed to occur outside the US.
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The UK has the largest number of SEC-registered firms outside the US
This means that UK-based firms must navigate both the SEC and FCA regulatory frameworks, which can be challenging due to their differences. The FCA, or the UK Financial Conduct Authority, has a strategic objective to ensure that relevant markets function well and protect the integrity of the financial system. It is focused on investor protection and has 12 principles for business that act as a code of conduct for regulated firms.
On the other hand, the SEC regulates and enforces federal securities laws, and each state also has its own securities regulator with its own set of "`blue sky'" laws. While the SEC is known for its antifraud provisions, it also has remote examination capabilities and conducts in-person inspections in the UK.
Despite the differences, there are common high-level philosophies that underpin both the SEC and FCA regulatory frameworks. For example, the SEC's concept of fiduciary responsibility to clients is also a feature of FCA requirements, demonstrating that there are similarities in their goals and desired outcomes.
To conclude, while the UK has the largest number of SEC-registered firms outside the US, these firms must navigate the complexities of multiple regulatory frameworks. However, there are tools and techniques available to ensure compliance with both sets of regulations, and some underlying philosophies unite the two systems.
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The SEC enforces federal securities laws, but each state has its own securities regulator
The US Securities and Exchange Commission (SEC) is the federal body that regulates and enforces securities laws in the United States. The SEC's role is to interpret and enforce securities laws, issue new rules, oversee securities institutions, and coordinate regulations among different parts of the government. It consists of five divisions and 23 offices, each with specific roles and responsibilities.
While the SEC regulates at the federal level, each of the fifty US states also has its own securities regulator and laws, known as "blue sky" laws. These state-level regulators enforce securities laws within their respective states, covering many of the same activities as the SEC, such as the sale of securities and those who sell them. Companies offering securities must, therefore, comply with both federal regulations and the state securities laws and regulations in the states where the securities are offered and sold.
The UK has the largest number of SEC-registered firms outside of the US. This is due to the UK's position as a significant source of funding for issuers and the desire of many issuers with a primary listing in the UK to offer securities to US investors. As such, an understanding of US securities laws and the potential applicability of these laws to offerings made outside the US is important for UK-based firms.
While the UK has its own regulatory framework, including the Financial Conduct Authority (FCA), there are common high-level philosophies that underpin both the SEC and FCA regulatory frameworks. For example, the FCA focuses on investor protection and consumer outcomes, while the SEC has antifraud provisions, both of which support a high-level ethical code.
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US securities laws require full and fair disclosure in connection with securities offerings
US securities laws are applicable to capital-raising transactions conducted in Europe and the UK, even if there is no clear US nexus. This is because the US is the world's largest capital market and a significant potential source of funding for issuers. As such, it is important for issuers to understand US securities laws and engage legal counsel that can provide US legal advice on securities offerings.
The SEC requires that the information provided by companies be accurate, but it does not guarantee it. Investors who purchase securities and suffer losses have recovery rights if they can prove incomplete or inaccurate disclosure of important information. In addition to the SEC, each of the fifty US states imposes its own securities regulations, known as ""blue sky" laws, which companies must comply with when offering securities in those states.
The Securities Exchange Act requires disclosure of important information by anyone seeking to acquire more than 5% of a company's securities by direct purchase or tender offer. This allows shareholders to make informed decisions on critical corporate events, such as when a person or entity is attempting to gain control of the company. The securities laws broadly prohibit fraudulent activities of any kind in connection with the offer, purchase, or sale of securities, including insider trading.
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US securities laws apply to UK schemes of arrangement involving restructuring of securities
When structuring a UK scheme of arrangement involving the restructuring of existing securities or the offer of new securities, consideration must be given to relevant US securities laws and registration exemptions. This is because security holders who are US citizens or residents may be involved, or new securities offered as part of the scheme may be distributed in the US.
Section 5 of the US Securities Act requires offers and sales of securities in the US to be registered with the US Securities and Exchange Commission (SEC), unless an exemption applies. Preparing a US-registered offering is a significant undertaking, and a registrant will be subject to SEC disclosure requirements. One exemption from the registration requirements of the Securities Act is Rule 802, which applies to certain cross-border exchange offers and business combinations by foreign private issuers involving the issuance of securities. This exemption is available if the issuer is a foreign private issuer, US holders hold no more than 10% of the securities to be exchanged, and US holders are permitted to participate in the offering on terms that are at least as favourable as those offered to other security holders.
Another relevant US securities law is Rule 10b-5, which applies to any offer or sale of a security, whether public or private. It provides that in connection with a purchase or sale, it is unlawful to make any untrue statement of a material fact or to omit a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading. Claims under Rule 10b-5 can be brought by private investors (including class-action suits) against an issuer and financial institutions involved in the offer or sale.
Additionally, an offer to all, or a substantial majority of, security holders which results in an offer for, or exchange of, existing securities, may constitute a tender offer under US securities laws. Rule 14e-1 under the Exchange Act makes it unlawful for any person making a tender offer to hold the offer open for less than 20 business days, make certain material changes to the offer without extending the period for an additional 10 business days, fail to pay the offered consideration or return the securities deposited, or extend the length of a tender offer without notice.
Therefore, when structuring a UK scheme of arrangement involving the restructuring of securities, it is important to carefully consider the applicability of US securities laws and any relevant exemptions to ensure compliance with the regulatory requirements.
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Frequently asked questions
Yes, US securities laws apply to every capital-raising transaction conducted in the UK.
The basic rule for raising capital in the US is that all securities must be registered with the US Securities and Exchange Commission (SEC) before they are offered or sold to US investors.
The purpose of the Securities Act is to enable investors to receive full and fair disclosure in connection with securities offerings in US capital markets.
Regulation S provides an exemption for sales outside of the US, rendering them outside the reach of the registration requirements of the Securities Act.
The FCA is very engaged with investor protection in the guise of "consumer outcomes", whereas the SEC has antifraud provisions, both supporting a high-level ethical code.
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