FCA issues first fine for listed company sponsor misconduct

The £231,000 fine imposed on Execution Noble & Company Ltd (ENCL), which was the UK unit of failed Portuguese investment bank Espirito Santo, was a warning to regulated sponsor firms, said financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com.

Sponsor firms are able to provide advice and guidance to listed companies and those planning to list on the London Stock Exchange, and also provide regulatory assurances to the UKLA in order to protect investors.

"This fine illustrates the FCA's continuing willingness to take enforcement action in areas of regulation it has not done previously and to use tools available to it which it has not used previously," Ruck said. "It also supports the FCA's focus on ensuring all firms and individuals which are part of the regulated financial services industry are being open and transparent with the regulator."

"Sponsors should take note of the FCA's interest in their activities and ensure they fully understand the relevant regulatory requirements, as the FCA is sending out a warning that it will not hesitate to take enforcement action when appropriate," said Ruck.

In 2013 the FCA was given the power to take enforcement action against sponsor firms for breaches of the listing rules, which set out the behavioural and governance obligations that listed companies must meet. The rules require sponsors to be "open and co-operative" with the regulator, and to provide it with "relevant information" to enable it to carry out its duties as UKLA in writing and as soon as possible.

ENCL failed to inform the UKLA that "two thirds" of its sponsor team had left the firm between June and November 2013, including those individuals responsible for leading and executing sponsor services, according to the FCA's final notice to the firm. It said that ENCL had continued to market itself as a competent sponsor firm during this period, and in fact provided one sponsor service after the relevant staff had left, before its approval was formally suspended at the firm's request in December 2013.

The FCA said that by failing to notify it of its staffing situation, ENCL "undermined the UKLA's ability to assess [its] ongoing competence to act as a sponsor". The UKLA contacted ENCL in November 2013 after press reports that one of the staff members responsible for leading sponsor services had joined another firm, at which time it was told of the other departures. In one case, the member of staff had left almost five months earlier, the FCA said.

"Sponsors perform a critical role in maintaining the integrity of the premium listed equity market by providing expert guidance on the listing rules and key regulatory assurances to the FCA," said Georgina Philippou, the FCA's acting director of enforcement and market oversight.

"It is vital that the regulator, issuers and investors have confidence in sponsors; and we rely on them having an open and co-operative relationship with us. All sponsors should take note of the consequences if they fail to notify us of material information on time," she said.