FCA’s New PFLS Regime: What India Can Build That the UK Could Not

[Arjun is a student at West Bengal National University of Juridical Sciences.]

When a company lists on the London Stock Exchange, the retail investor who ultimately buys shares rarely reads the prospectus. Their exposure to the offering is largely mediated through pension fund managers, broker platforms, and institutional investors that conduct independent due diligence and research before committing capital. Therefore, by the time retail money arrives, projections disclosed during roadshows have already been filtered, analysed and repriced. The Indian primary market is structurally different in that sense. When a company lists on the NSE or BSE through a book-built IPO, retail investors participate directly through Applications Supported by Blocked Amount and often rely on the DRHP as their principal source of information. In most mid- and small-cap offerings, there is little or no analyst coverage available to independently verify what the document says, or to identify what it omits.

This creates a structural paradox, wherein the qualified institutional buyers and anchor investors receive management projections on revenue growth, margins, expansion plans, and capital expenditures through roadshows and use that information to determine pricing. Retail investors, however, receive only the DRHP, which contains none of these projections. The resulting information asymmetry is not mere incidental to the current framework; it can be structurally located within it.  The immediate consequence of this asymmetry was reflected in SEBI’s 2024 study, which found that 50.2% of the shares allotted to individual investors were sold within a week of allotment.

This blog examines whether a prospectus forward-looking statement (PFLS) regime can act as a corrective framework to India’s information asymmetry problem. Part II examines the UK's PFLS regime. Part III identifies the investor trust deficit that persists after such liability recalibration. Part IV argues that Indian securities law already contains the institutional mechanisms necessary to address that deficit through a PFLS regime. Part V concludes.

The UK Solution: What the FCA Built, and What It Gave Up

The Financial Conduct Authority (FCA) recognised the asymmetry described above, although less pronounced in the UK, and introduced the PFLS regime through Policy Statement PS25/9, effective January 2026. 

The global market data underpinning the reform is crucial. A comprehensive study of 2,547 US IPO prospectuses found that quantitative forward-looking disclosures are associated with measurably higher first-day returns, greater trading activity, and stronger long-term profitability. A separate study published in the Journal of Business Finance & Accounting found that retail investors are more responsive to such statements than institutional investors, leading to better market outcomes. In light of such studies and investor feedback, the FCA responded with a new framework, primarily built on liability recalibration. A forward-looking statement is now assessed not against negligence but against mere recklessness or dishonesty. Good-faith projections that are later proved inaccurate carry no civil liability; shifting the primary burden from the issuer to the claimant in general. The framework operates through two tracks: the financial track covers statements that imply specific, calculable figures, while the operational track covers commitments to empirically verifiable outcomes. 

The consultation record of PS25/9 tells a more complicated story. In CP24/12, the FCA proposed a binding preparation criterion for PFLS, grounded in established accounting practice. The objective was to ensure that projections were supported by robust methodology before seeking liability protection, thereby promoting investor confidence. These criteria were intended to be enforceable, not aspirational.

But the industry objected, law firms, investment banks, and other market actors argued that binding preparation criteria would reintroduce negligence liability by another route. If courts could point to prescribed preparation standards, non-compliance with those standards could become evidence of negligence, undermining the liability recalibration intended by the FCA. The FCA took note of these concerns, and as ¶5.42 and 5.47 of the new rules suggest, the preparation criteria for both financial and operational PFLS were moved into Technical Note TN/639.1, a non-binding guidance document. Methodology ceased to be enforceable. The principal safeguard intended to give investors confidence in projections was removed before the new rules even came into force.

What the FCA initially contemplated was closer in spirit to Article 11.3.1 of Annex 1 to EU Commission Delegated Regulation 2019/980, which requires profit forecasts in EU prospectuses to be examined by an independent auditor and reported on as to whether the forecast has been properly compiled. Rather, what PS25/9 eventually delivered were projections self-certified by the issuer, prepared under unenforceable guidance, with no examiner and no verification mechanism. 

The Two-Dimensional Trust Gap

Liability recalibration alone cannot solve the problem. A credible forward-looking statement regime must address two distinct dimensions of investor trust, and the UK’s PFLS regime, as it is, addresses neither.

The first dimension is operational trust, in which there is no means to test the operational future timelines provided by management in the prospectus. Consider the types of statements that currently populate the strategic and business sections of DRHPs, especially in India. A typical disclosure reads: 'We intend to continue expanding our operations by opening additional centres in untapped geographies, recruiting high-quality clinical professionals...' Each operative word evades issuer accountability: "Intend." "Subject to." "At the discretion of the Board." The statements contain no target, timeline, or objective benchmark against which subsequent performance can be assessed. A PFLS regime that subjects such statements to a lower liability threshold significantly improves an issuer's position, allowing them to provide more concrete timelines/targets for such plans. It does little, however, for the investor seeking to distinguish a genuine strategic commitment from a mere narrative statement about growth, by leaving them with no recourse to verify such commitments now. 

The second dimension is financial projection trust, in which there are no means to test whether the numbers themselves are credibly projected. Even if a company discloses a revenue projection of INR 500 crores by FY28, a retail investor has no basis to determine whether that figure is derived from a disciplined financial model or negligently pulled out of thin air to achieve a desired valuation outcome. The disclosure of assumptions, without any examination of their reasonableness, does little to resolve that uncertainty. 

Now, for India to take inspiration from the UK PFLS and solve the even more pronounced information asymmetry that exists domestically, the identified trust gap begs to be abridged.

What India Already Has: Bridging the Trust Deficit

The mechanisms removed during the FCA's consultation process for the new rules already exist within Indian securities law. The question, therefore, is not whether they can be built, but whether they can be assembled within the pre-IPO disclosure framework. More importantly, they correspond directly to the two trust deficits identified above. Financial trust requires a mechanism that tests the credibility of assumptions before disclosure. Operational trust requires a mechanism that holds issuers accountable when reality diverges from disclosed plans. Indian securities law already contains both.

The first mechanism is independent examination. Under the SEBI (Real Estate Investment Trusts) Regulations 2016, REITs must provide documents that include three-year income projections certified by both the investment manager and the statutory auditor. Similarly, Schedule II of the SEBI (Infrastructure Investment Trusts) Regulations 2014 requires that project-wise revenue and cash flow projections be auditor-certified before disclosure. Both frameworks apply SAE 3400, under which the examiner assesses whether the underlying assumptions have a reasonable basis, an appropriate methodology, and are not misleadingly presented. SEBI has therefore already accepted that where valuation depends materially on future performance, investors may be provided with independently examined projections. The equity IPO remains the most obvious setting in which that principle has yet to be applied. Under a proposed Indian PFLS regime, an issuer wishing to include a forward-looking financial statement can submit it for SAE 3400 examination before filing, following the same sequence that REIT and InvIT managers already follow before submitting the offer document.

The second mechanism is material operational disclosures. Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, read with Schedule III already provides a structured framework for identifying, escalating, and disclosing material developments to the market. The February 2025 ISF Industry Standards acts as the preparation guide for these disclosures, much like the FCA’s technical note. Unlike the FCA’s technical note, however, the Industry standards operate alongside Regulation 30, thereby giving them regulatory significance and enforceability. 

A framework like this can be used under an Indian PFLS framework in two ways. The first function of such a framework is that, when an issuer applies for designation to operationalise his/her statement, they would be obliged to include milestones and timelines in the DRHP, moving away from narrative statements like "we intend to expand our operations" to more concrete commitments. Second, post-listing, whenever an issuer deviates from these milestones and/or timelines, such deviation constitutes a material event under Regulation 30 and is subject to scrutiny. 

Conclusion

What the FCA envisioned and what it ultimately enforced are separated by a concession the industry extracted, and the FCA accepted. The framework that has emerged may increase the volume of forward-looking statements, but leaves the retail investor's ability to assess their credibility exactly as it was before. India's retail IPO investors are more exposed to that credibility gap than any investor the FCA was designed to protect. Mechanisms to close such a gap already exist within Indian securities law, but the framework to allow targeted projections in itself is something that does not. Whether SEBI chooses to build it will determine whether the retail investor will ever receive the same quality of information that has already determined the price they are paying.