FCA Enforcement Actions
Cliff Weight and Peter Parry met with Executives from the FCA Primary Markets and Secondary Markets teams on 28 October. We discussed a number of regulatory issues and shared various concerns. The nature of these meetings is that much is confidential and the FCA cannot comment on specific cases if that might be prejudicial to those being investigated, nor can they comment on cases that are not known to be in the public eye.
I am pleased to report the following FCA enforcement actions:
- Sir Christopher Gent
Many observers are unfairly critical of the FCA and fail to mention the progress that the FCA is making. These highly complex cases take many years to complete. It is not the fault of the FCA that such cases take so long – Government need to review how the law is operating and whether it can be improved. ShareSoc’s view is that in general delayed justice is injustice. The FCA has increased its resources and is determined to do more in this area.
In summary the 4 cases are:
Sir Christopher Gent
The Financial Conduct Authority has fined Sir Christopher Gent, former non-executive Chairman of ConvaTec Group Plc, £80,000 for unlawfully disclosing inside information. Gent was previously CEO of Vodafone and was awarded a £10 million bonus re the Vodafone acquisition of Mannesmann for £107 billion (Guardian) or a $190 billion deal (Goldman Sachs).
We provided our feedback that the fine looked low, by several orders of magnitude, and so might be viewed by some as a slap on the wrist, rather than the huge signal and deterrent that the FCA intended.
FCA publishes Decision Notices for Carillion plc (in liquidation) and three of its former executive directors
Carillion has not referred its Decision Notice to the Upper Tribunal. The FCA has imposed a public censure on Carillion, rather than a financial penalty, given the firm is insolvent and in liquidation. Were it not for Carillion’s financial circumstances, the FCA would have imposed a financial penalty of £37,910,000. In the three individuals’ Decision Notices, the FCA has decided to fine Mr Howson (former chief executive officer) £397,800, Mr Adam (former finance director) £318,000 and Mr Khan (former finance director) £154,400.
The FCA considers that Carillion recklessly published announcements on 7 December 2016, 1 March 2017 and 3 May 2017 that were misleading and did not accurately or fully disclose the true financial performance of Carillion. Those announcements made misleadingly positive statements about Carillion’s financial performance generally and in relation to its UK construction business in particular. The announcements did not reflect significant deteriorations in the expected financial performance of Carillion’s UK construction business and the increasing financial risks associated with it. In the view of the FCA, Carillion’s systems, procedures and controls were not sufficiently robust to ensure that contract accounting judgments made in its UK construction business were appropriately made, recorded and reported internally to the Board and the Audit Committee.
The FCA also considers that Mr Howson, Mr Adam and Mr Khan acted recklessly and were knowingly concerned in Carillion’s contraventions. In the FCA’s view, Mr Howson, Mr Adam and Mr Khan were each aware of the deteriorating expected financial performance within Carillion’s UK construction business and the increasing financial risks associated with it. They failed to ensure that those Carillion announcements for which they were responsible accurately and fully reflected these matters. Despite their awareness of these deteriorations and increasing risks, they also failed to make the Board and the Audit Committee aware of them, resulting in a lack of proper oversight.
UK watchdog fines Barclays $55 mln for fees paid in 2008 fundraising
The FCA said it would fine Barclays (BARC.L) 50 million pounds ($55 million) for its failure to disclose fees paid to Qatari entities during its financial crisis-era fundraising. The fine dates back to the height of the 2008-9 crisis, when Barclays scrambled to raise funds from overseas investors including Qatar in order to avoid a state bailout.
The FCA said that Barclays paid undisclosed fees to Qatari funds involved in its rescue which were calculated “specifically by reference to the Qataris’ demands” rather than advisory services that Barclays had said it expected to receive. The FCA said that information would have been highly relevant to shareholders and investors, in a situation where the costs of the deal were already seen as highly expensive.
The delay over the proposed fine comes because the FCA stayed proceedings in the case while the Serious Fraud Office pursued charges against three former Barclays bankers over the fundraising.
The FCA has begun criminal proceedings against five individuals involved with Worthington Group plc
The FCA launched a criminal investigation into market abuse and market manipulation in April 2016, following the suspension of Worthington Group plc’s (WRN) shares from the Official List and Main Market of the London Stock Exchange (LSE) on 10 October 2014.
Mr Aidan Earley, Mr Ware, Mr Spurway and Mr Biggar have each been charged with two counts of fraudulent trading. Mr Ware was the director and CEO, Richard Spurway was a director, and Mr Biggar’s role was as a media advisor. Aiden Early is alleged to have been concerned in the management of WRN despite him being disqualified from acting as a company director. They are all alleged to have been involved in running the company.
We stressed to the FCA that ShareSoc prefers fines like this against responsible individuals, not penalties against companies. the latter just harm shareholders. What does this fine against Barclays achieve? Relative to Barclay’s size it’s too small to have any impact and doesn’t affect those responsible in any way. It just creates a hit to profits that shareholders have to absorb. The fines of individuals look too small, considering the substantial salaries and bonuses of the people concerned. Fines for alleged offences like this should be eye-watering to truly deter others.
We had a wide-ranging discussion. We mentioned our interest in the Flint Digitisation Review, Productive Finance and the retail protections surrounding secondary capital raisings.
We raised our concerns about the Productive Finance Working Group’s recommendation that defined contribution (DC) pension funds should be encouraged to invest members funds in more risky assets than has hitherto been possible. This will be achieved by changing the fee cap on advisers’ fees. Currently the fee cap has to include performance fees, typically charged on more ‘racy’ investments such as private equity investments and illiquid assets.
We responded to a consultation from the DWP last November on this issue and said that we thought it was a dreadful idea. The recent liquidity problems faced by the DB pensions sector following the infamous Kwarteng Mini-budget (which resulted in the sector having to be bailed out by the Bank of England) has reinforced our view that the Productive Finance Working Group, of which the FCA is a key member, should reconsider its proposals.
The FCA said that it has a small team specialising in pensions and that it will arrange for us to meet them.
Secondary Capital Raisings
We reaffirmed that we are supportive of the proposals in Mark Austin’s Review of the Prospectus Regime. However, we expressed concerns about investor protections surrounding unlisted securities. Our main concern is that it will be easier for advisers to promote unlisted investments to private clients and that this will open up an attractive new area of opportunity for advisers. This may lead advisers to gloss over the significant risks that often come with these types of investments.
The FCA said that it would be consulting on these and other issues relating to secondary capital raisings and that it would notify us of the consultation when issued – probably early in 2023.
FCA executives did not attend the ShareSoc Investing Basics launch at the LSEG, so we played the 53-second highlights video, which they were very impressed by. We explained our future plans and subsequently sent them a briefing pack and a request to meet their communications team.
More To Do
Whilst we appreciate the steps the FCA are taking and the resources being deployed into these high-profile cases, ShareSoc believes that the FCA still has major cultural problems of risk aversion, lack of transparency and lack of consumer focus. Whilst ShareSoc appreciates the need for confidentiality regarding ongoing investigations, the lack of feedback to consumer complainants remains unacceptable.
We shall be writing to the FCA with a request to discuss the following idea:
In the first instance, the FCA should report to the complainant whether it is investigating a complaint and, if not, why not. Whilst a complaint remains under consideration, reports to the complainant indicating that this is the case should be provided to the complainant from time to time, or when requested. Finally, when determined, the complainant should be advised of the ultimate decision and any action taken.
This is what we understand the police do in response to crime reports. The FCA should operate to the same standards – and treat complainants as valued stakeholders, not nuisances to be swatted away.
If there is legislation (or an absence of legislation) preventing the FCA from doing this, the FCA need to tell us what it is, so that we can lobby for change.
Notably, the Press is generally pretty hostile to the FCA. For example, The Times on 1st November https://www.thetimes.co.uk/article/city-watchdog-fails-to-act-on-director-bans-0d222wkzz – the FCA is in the doghouse and the headlines again – this time for failing to act on directors’ bans. More than fifty company directors who have been disqualified have faced no further disciplinary action from the FCA and seven remain approved by the regulator. The FCA response: ‘We have taken a number of steps to make the register clearer for consumers and continue to make improvements’. Whenever we meet the FCA, we ask them to be more transparent and explain themselves.
We also asked for a meeting for all individual members to attend to hear more about the work that the FCA does in respect of investing in funds and shares. This would be similar to the very successful events we have run with the FRC titled Lifting the Lid. We are hopeful such a meeting with the FCA will be organised in 2023.
This is a ShareSoc News Item written by ShareSoc Director Cliff Weight
5 Nov 2022
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