The systems and controls failings resulted in Lamprell breaching the Listing Principles, the Disclosure and Transparency Rules and also the Model Code on directors’ dealings in securities.
From early in 2012, Lamprell’s financial performance against its budget had been deteriorating due to operational issues. However, Lamprell did not update the market on its deteriorating financial performance until it released a trading update on 16 May 2012. In response to this trading update, Lamprell’s share price fell by 57% demonstrating the importance of that financial information.
There were serious systems and controls failings at Lamprell which meant it was unable to adequately monitor the full impact of operational issues on its financial performance for the year. Lamprell’s systems and controls in this respect had not grown and developed in line with its operational growth. It was therefore unable to update the market in a timely manner as to its financial performance. This amounted to a breach of Listing Principle 2 which requires a listed company to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations under UKLA rules.
The systems and controls failings meant crucial information was not available to investors on a timely basis. During early 2012, in the period when Lamprell failed to recognise its deteriorating financial position, it made a number of announcements which were generally positive about Lamprell’s operational performance. Lamprell’s failings in its systems and controls meant that it was, however, omitting to disclose important financial information to the market.
When Lamprell did eventually recognise the deterioration in its financial performance, it did not act sufficiently quickly to update the market, for example it could have released a holding statement prior to the trading update on 16 May 2012. Lamprell was also too slow in acting to prevent its employees from continuing to deal in its shares once the inside information regarding poor financial performance had been recognised by senior management (although the FSA is satisfied that trading by such employees after 29 April 2012 was not based on inside information).
The penalty is the first imposed for breaches of this kind under the FSA’s new penalty policy. The penalty is linked to Lamprell’s market capitalisation and is expected to lead to significantly higher penalties than in the past.
Tracey McDermott, FSA director of enforcement and financial crime said:
“The integrity of our markets depends on listed companies making timely and accurate disclosures of material developments on an on-going basis. Lamprell’s systems and controls may have been adequate at an earlier stage, but failed to keep pace with its growth. As a result they were seriously deficient for a listed company of its size and complexity, meaning it was unable to update the market on crucial financial information in a timely manner.
“Listed companies should have no doubt about the importance the FSA places on them meeting their obligations in order to protect investor interests and to maintain confidence in UK markets.”
Notes for editors
- The Final Notice for Lamprell plc[1].
- In determining the financial penalty imposed on Lamprell, a methodology has been used under the current penalty regime which sets a precedent for penalties against listed companies in respect of similar breaches. This methodology is based on a percentage of Lamprell’s market capitalisation, something the FSA expects will significantly increase the level of financial penalties against listed company for these types of rule breaches (compared to penalty levels under the previous penalty regime for similar offences). In determining the penalty, the FSA has taken into account a number of factors including proactive steps taken by Lamprell to co-operate fully during the investigation and the remedial steps taken by Lamprell to address the issues identified.
- Previous action taken by the FSA for similar breaches include JJB Sports plc, Photo-Me International plc and Wolfson Microelectronics plc.
- The FSA, when it acts as the competent authority under Part VI of FSMA, is referred to as the UK Listing Authority or UKLA. In this role, the FSA is a securities regulator, focused on the companies which issue the securities traded in financial markets. By making and enforcing the Disclosure and Transparency Rules, the Listing Rules and the Prospectus Rules, the FSA aims to protect investors and foster appropriate standards of transparency, conduct, shareholder rights and due diligence.
- 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.
- The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013 as required by the Financial Services Act 2012[2].