The Financial Services Authority (FSA) has fined Nestor Healthcare Group Limited (Nestor) £175,000 for failing to take adequate steps to ensure that its board members and senior executives complied with the share dealing provisions of the FSA’s Model Code.
Nestor had a policy on how senior Nestor staff intending to trade in the company’s shares should obtain clearance to deal. The FSA has found that the breaches occurred principally because Nestor’s weak procedures allowed for this policy to be forgotten by the board. This, with other factors, led to purchases of Nestor shares by board members being carried out in breach of the Model Code, which lays down minimum procedural standards.
In the period 18 October 2006 to 30 June 2010 Nestor was listed on the Main Market of the London Stock Exchange. Under the Listing Rules, Nestor was required to take all proper and reasonable steps to secure the compliance of its persons discharging managerial responsibility with the Model Code.
Throughout this time Nestor did not issue any reminders about its own share dealing rules (which largely reflected the Model Code), review them or identify that breaches of the Model Code had occurred. Nestor employed an informal approach to granting dealing approval and largely relied on the experience and knowledge of its directors to ensure that the appropriate compliance was met. This approach was inadequate and contributed to the company’s failings.
David Lawton, the FSA’s director of markets, said:
“The Model Code is fundamental in helping directors and senior executives protect themselves against suspicion of abusing inside information. Regardless of their size, the FSA expects listed companies to meet their obligations under the Listing Rules and Listing Principles and ensure that the Model Code is complied with at all times. Nestor’s own share dealing policy fell by the wayside, which the FSA regards as unacceptable. Listed companies should ensure their practices in this area are fit for purpose.”
Nestor agreed to settle at an early stage of the FSA's investigation and therefore qualified for a 30% discount on its financial penalty. Were it not for this discount the FSA would have imposed a financial penalty of £250,000 on Nestor.
The FSA does not allege that any of the dealings referred to in the Final Notice were based on inside information.
Notes for editors
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Read the Final Notice for Nestor Healthcare Group Limited[1]
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The fine imposed on Nestor is the first penalty imposed on a company by the FSA for breaches of the Listing Rules and Listing Principles relating to compliance with the Model Code.
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The Model Code imposes restrictions on dealing in the securities[2] of a listed company[2] beyond those imposed by law. Its purpose is to ensure that persons discharging managerial responsibilities[3] do not abuse, and do not place themselves under suspicion of abusing, inside information[4] that they may be thought to have, especially in periods leading up to an announcement of the company's[5] results.
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A person discharging managerial responsibilities who is given clearance to deal must deal as soon as possible and in any event within two business days of clearance being received.
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Listing Rule 9.2.8 requires a listed company to require every person discharging managerial responsibilities[6], including directors[7], to comply with the Model Code[8] and to take all proper and reasonable steps to secure their compliance. Listing Principle 1 states that a listed company[9] must take reasonable steps to enable its directors to understand their responsibilities and obligations as directors. Listing Principle 2 states that a listed company must take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations.
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The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
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The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013 as required by the Financial Services Act 2012[-25].