The Financial Conduct Authority (FCA) has fined Asia Resource Minerals plc (ARM), formerly Bumi plc, £4,651,200 for having inadequate systems and controls to comply with its obligations as a listed company, breaching various rules applicable to listed companies and failing to identify related party transactions valued at just over £8m.
The FCA found that ARM committed serious breaches of Listing Principle (LP) 2, Listing Rules (LR) 8 and 11 and Disclosure and Transparency Rule (DTR) 4 in the period 28 June 2011 to 19 July 2013.
Georgina Philippou, acting director of enforcement and market oversight, said:
“The UK listing regime provides confidence to investors that listed companies adhere to a range of standards on governance and investor protection. The related party transaction rules protect minority investors in listed companies by ensuring that large shareholders and company directors do not unfairly benefit from their position.
“ARM should have been alive to the need for robust systems and controls to clearly identify related party transactions. ARM fell below the standards we expect; the failings were serious and went on for two years and ultimately led to the suspension of the company’s shares. We expect listed companies to comply with the UK Listing Rules from Day 1 of listing and the penalty in this case demonstrates that we will take strong action when companies fail to meet the required standards.”
ARM was admitted to the premium section of the Official List on 28 June 2011. On 19 April 2013, the company notified the UKLA that it would be unable to publish its 2012 Annual Financial Report (AFR) within the deadline set out in DTR4, due to an ongoing review of the integrity of a number of items on the balance sheet of its subsidiary, PT Berau Coal Energy Tbk. This review included historic potential related party transactions. On 22 April 2013, the company’s shares were suspended from trading for three months.
During the period from 28 June 2011 to 19 July 2013, ARM failed to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations, in breach of LP2. The company also breached LR11 in respect of its treatment of related party transactions and LR8 with regard to the need to consult a sponsor when proposing to enter a transaction that is, or may be, a related party transaction. The belated discovery and review of these transactions, along with other financial irregularities, led to ARM’s failure to publish the 2012 AFR within the four months required by DTR4. ARM’s shares were returned from suspension in July 2013.
These failings were significant given that the structure of the company and its subsidiary director relationships gave rise to an increased risk of the occurrence of related party transactions. As a result of these failings, investors did not have the level of protection that should have been provided under the LRs in respect of transactions with related parties.
ARM agreed to settle at an early stage in the investigation and therefore qualified for a 30% reduction in penalty. Were it not for this discount the FCA would have imposed a financial penalty of £6,644,641.
Notes to editors
- The Final Notice[1].
- This is the second final notice issued in relation to a listed company’s failure to comply with the Listing Rules applicable to related party transactions. The first was Exillon Energy plc dated 26 April 2012.
- In summary, related parties to a listed company are substantial shareholders, directors/shadow directors of the listed company or its subsidiary or parent, a person exerting significant influence or an associate of one of these.
- Listing Rule 8.2.3R2 requires listed companies to obtain the guidance of a sponsor when proposing to enter into a transaction that is, or may be, a related party transaction, in order to assess the application of the listing rules and disclosure and transparency rules.
- Listing Rule 11.1.10R (as applicable at the relevant time) applies to related party transactions if each of the percentage ratios is less than 5% but one or more of the ratios exceeds 0.25% and requires that in relation to such transactions, prior to being entered into, the listed company must inform the FCA in writing of the details of the proposed transaction and provide the FCA with written confirmation from an independent adviser acceptable to the FCA that the terms of the transaction are fair and reasonable as far as the shareholders of the company are concerned and undertake to include details of the transactions in the next published annual accounts.
- Listing Rule 11.1.11R requires listed companies to aggregate transactions with the same related party in a 12 month period. To the extent that such transactions exceed 0.25% of any of the percentage ratios in Listing Rule 10, Listing Rule 11.1.11R(3) (as applicable at the relevant time) requires the company to inform the Authority of the details of the aggregated transactions, provide a written confirmation from an independent adviser that the terms of the transaction were fair and reasonable; and undertake to include details of the transactions in the next published annual accounts.
- Listing Principle 2 (as applicable at the relevant time) 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.
- The trading of ARM’s shares is currently suspended following a recent request from ARM. More information in relation to the suspension is available in announcements made by the company.
- On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA[2].