FCA fines a premium listed company and two of its directors for breach of the Listing Principles and DTRs

5 June 2019

Summary

The FCA has published decision notices fining Cathay International Holdings Ltd, its CEO and Finance Director for breach of the Listing Principles and DTRs.  Mark Steward, Executive Director of Enforcement and Market Oversight comments ‘These cases show that we will hold to account not only the company, but also its directors for breaches of these important obligations’.

Cathay International Holdings Limited’s (Cathay) financial performance deteriorated during 2015 due to various issues in its group.  In the FCA’s view, there were serious procedures, systems and control failings which meant that Cathay did not monitor the full impact of these issues on its expected financial performance.  As a result, the FCA fined Cathay £411,000 for recklessly breaching:

  • Listing Principle 1 (reasonable steps to establish adequate procedures, systems and controls);
  • DTR 2.2.1R and Premium Listing Principle 6 (avoid the creation of a false market) for failing to disclose as soon as possible a material change in its actual and expected performance compared to market expectations; and
  • Listing Principle 2 (dealing with the FCA in an open and co-operative manner) by providing information to the FCA that was materially different to actual procedures without any explanation.

The imposition of the fine against Cathay is in line with the FCA’s expectation for companies to have effective systems and controls in place in order to release inside information in a timely manner and avoid the creation of a false market.  In particular, in December last year the FCA published  Market Watch No.58 reminding companies of the importance of maintaining adequate procedures, systems and controls in order to comply with their disclosure obligations under the Market Abuse Regulation. 

Of note however are the two fines against Cathay’s CEO (Mr Lee) and its Finance Director (Mr Siu) of £214,300 and £40,000 respectively for knowingly being concerned in the company’s breaches.

Mr Lee was a senior person within Cathay.  He was responsible for maintaining and implementing procedures and internal controls and he had received direct advice on multiple occasions from the company’s financial adviser and legal advisers concerning Cathay’s disclosure obligations.  However, he recklessly failed to take any steps to ensure that Cathay put in place procedures, systems and controls nor did he ensure that Cathay and its board considered its financial performance against market expectations.  As a result, he was fined for being knowingly concerned in Cathay’s breach.

Mr Siu was responsible for corresponding with the FCA about its forecasts and without any explanation, he provided the FCA with information which was not a contemporaneous record of the financial information available. Although it was not his intention to mislead the FCA, he was involved in Cathay acting unreasonably in the way that it dealt with the FCA’s information requests.

These cases remind companies and their directors of the need to provide clear and accurate information to the FCA in order for it to ensure that it can effectively monitor and regulate the integrity of the financial markets in the UK.  The fining of directors personally is unusual and a timely reminder of the risk of personal liability for failure to comply with the rules.

The company announced on 31 May 2019 that Cathay, Mr Lee and Mr Siu are considering whether to refer the FCA’s decision to the Upper Tribunal.