You may have seen that, for the first time, the Financial Conduct Authority (FCA) has fined a sponsor for breach of the Listing Rules.  Below is a brief note on the fine.  The decision does highlight the fact that sponsors have to notify the FCA (as the UKLA) – as well as FCA Supervision teams.  This is potentially an easy win for the UKLA, because in global full service firms, some changes which require notification by the sponsor to it such as group restructuring or re-organisation, and substantial changes of directors, are implemented well away from the sponsor unit – yet also fall within the sponsor notification requirements (please see UKLA Technical Note TN 711.1).  In contrast, substantial changes to sponsor teams are plainly known to the sponsor team.

The key facts were that two-thirds of the firm’s sponsor team had departed over a period of months (including all of the key individuals responsible for leading and executing sponsor services), and the firm had failed to advise the UKLA of this.  The FCA was concerned about the potential impairment of the sponsor’s ability to meet the criteria for approval as a sponsor and discharge the sponsor function.

Although the sponsor failed to inform the UKLA that the individuals had left the firm, it did notify the FCA’s Authorisations department.  The most important point from the FCA decision for sponsors is, therefore, that there is a need to make appropriate notifications to the UKLA (in its sponsor supervision capacity) as distinct from other arms of FCA (acting in differing capacities, in particular those that may require the UKLA to assess the impact of the development on the firm’s sponsor competence).  The FCA emphasises the need for sponsor firms to have an open and co-operative relationship with the UKLA, on an on-going basis, as required by LR8.3.5R(1) and the guidance in LR8.7.1G.

The Final Notice also refers to concerns about the sponsor’s performance related to staffing and experience levels; there is a suggestion of insufficiently frequent historic sponsor.

In setting the amount of the fine (£330,000, subsequently reduced to £231,000 as a result of an early settlement discount), the FCA concluded that the revenue generated by the sponsor was not an appropriate indicator of the harm or potential harm caused by failure to notify the FCA of information it would reasonably expect to receive; it did not suggest an alternative indicator of the harm or potential harm caused by the sponsor’s breaches.  The FCA also did not consider the notification to the FCA’s Authorisations department to be a mitigating factor of the breach.  Instead, the fine was calculated by the FCA’s view of the seriousness of the breach, plus a 10% increase because the UKLA’s July 2013 guidance in relation to sponsor’s notification obligations acted as an aggravating factor.

The FCA’s powers to fine sponsors

As part of the reform of the structure of financial services regulation in the UK, which took effect on 1 April 2013, the FCA was given stricter powers to sanction sponsors than its predecessor, the Financial Services Authority. The powers conferred upon the FCA, in the event of a breach of the Listing Rules by a sponsor, under section 88A(2) FSMA, included:

  • the power to impose financial penalties; and
  • the power to suspend the approval of a sponsor, for a period not exceeding 12 months.

Before 1 April 2013, the FSA had only been able to censure a sponsor or cancel its approval to act as a sponsor.

Future developments

Separately, the UKLA may consult on rules to bolster the sponsor regime and improve the effectiveness of sponsor conflicts management. A feedback paper on FCA CP 14/2 (sponsor competence), which includes a consultation paper on joint sponsors and a call for views on sponsor conflicts, is expected to be published in the second quarter of 2015.

The FCA Final Notice to Execution Noble & Company, dated 18 December 2014 and published on 6 January 2015, is available on the FCA website.