By Huw Jones

LONDON (Reuters) – Investing in “blank cheque” or special purpose acquisition companies (SPACs) may not be appropriate for everyone, and additional action may be needed to preserve investor protection, the European Union’s markets watchdog said on Thursday.

SPACs are shell companies that raise funds via a listing to acquire a private company with the purpose of taking it public.

More than 400 SPACs have been listed globally so far this year, with Wall Street dominating as Europe plays catch up.

But the European Securities and Markets Authority (ESMA) said SPACs “may not be appropriate for all investors” due to risks from dilution, conflicts of interests and uncertainty as to the identification and evaluation of the target company.

It set out how SPACs should tell investors about risks, business strategy and criteria for selecting a target company, with the extent of dilution, such as from payment of fees in shares, illustrated by using tables or diagrams.

“This description shall take into account the issuer’s future challenges and prospects,” ESMA said.

Amsterdam has been attracting SPAC listings, prompting Britain to ease its own listing rules to avoid being left behind.

“There has been a significant rise in SPAC activity in EU capital markets this year, and with this comes growing interest from investors,” ESMA’s interim chair Anneli Tuominen said in a statement.

“Therefore, it is essential that investors are provided with the information necessary to understand the structure of SPAC transactions before making any investment decisions.”

(Reporting by Huw Jones; editing by John Stonestreet and Emelia Sithole-Matarise)