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Fine for breach of the disclosure and transparency rules and the listing rules

Print publication

04/02/2015

The Financial Conduct Authority (the FCA) has fined Reckitt Benckiser Group plc (the Company) £539,800 for a number of breaches of the Listing Rules and the Disclosure Rules and Transparency Rules:

  • LR 9.2.8R (failure to require persons discharging managerial responsibilities (PDMRs) to take all reasonable steps to secure their compliance with the Model Code)
  • DTR 3.1.4R (failure to notify the market of share dealings by two PDMRs as soon as possible and, in any event by no later than the end of the business day following receipt of the information)
  • DTR 3.1.5R (failure to include all requisite information in the notification to the market relating to the share dealings by the two PDMRs).

The FCA also found two breaches of the Listing Principles:

  • Listing Principle 1 (failure to take reasonable steps to enable its directors to understand their responsibilities and obligations to comply with the Model Code, resulting in a breach of the Model Code)
  • Listing Principle 2 (failure to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations).

The nature of the failings in the Company’s systems and controls pertaining to share dealings by PDMRs was:

  • it was possible, in certain circumstances, for PDMRs to deal in the Company’s shares without having sought clearances in accordance with the Model Code
    consequently some dealing occurred without clearance being obtained
    the Company did not take steps to reinforce, on any formal or regular basis, the importance and necessity of complying with the Model Code and the Disclosure and Transparency Rules (beyond issuing reminders to PDMRs in advance of close periods and the annual certification process)
  • the Company did not take steps to ensure that all of its PDMRs were aware of the application of the Model Code to different types of share dealing and of their ongoing compliance obligations
  • one of the PDMRs concerned was unaware that pledging shares as security for a loan constituted dealing under the Model Code (and therefore did not appreciate that the obligations regarding clearance and notification applied)
  • the Company had placed too much reliance on the knowledge and experience of the PDMRs generally
  • the Company’s processes did not enable it to identify or monitor trading conducted other than through its share plan administrator and the Company was overly reliant on its share plan administrator to notify it when dealing had taken place
    although the Company’s share dealing policy envisaged an “intention to deal” form being issued as clearance, in practice, clearance was sometimes given orally
    inadequate records were maintained of responses to applications for clearance.

The size of the penalty reflected the fact that the breaches took place over a significant period of time and that the FCA had published a number of documents concerning PDMRs and the importance of complying with the Model Code in the relevant period. On the other hand, the Company had cooperated with the FCA investigation, had not profited from the breaches, the breaches had not been deliberate or reckless and the dealings in question had not been based on inside information. The penalty was also reduced by 30 per cent for early settlement.

Walker Morris comment
The case appears to be a classic example of a company having a written policy in place but not sticking to it in practice. It shows the importance of training PDMRs and of effective record-keeping and of keeping systems under review with periodic reinforcement of the importance of complying with the rules.

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