Public censure and fine for breaching AIM Rules 10 and 31Print publication
On 10 August 2020, the London Stock Exchange (LSE) announced that Yü Group plc (Yü) had been publicly censured and fined £300,000 for breaches of Rules 10 (principles of disclosure) and 31 (AIM company and directors’ responsibility for compliance) of the AIM Rules for Companies (AIM Rules).
During the first half of its financial year to 31 December 2018, Yü made a number of forecasts that its full year profits before tax would exceed market expectations. It later identified material errors in its previous management information and that, rather than meeting market expectations of predicted profit before tax, it was likely to make a significant loss. It released a trading statement to confirm the position. Following an internal and commissioned accounting review, it was identified that there were a number of weaknesses in Yü’s financial control environment. The company immediately implemented a remediation programme.
The LSE determined that AIM Rules 10 and 31 had been breached for the following reasons.
Yü breached AIM Rule 31 as it failed to ensure that it had in place sufficient procedures, resources and controls to comply with the AIM Rules.
The failure to have in place effective financial reporting systems and controls meant that during the relevant period Yü could not place sufficient reliance on the integrity of internal financial data, for the purposes of assessing its profitability against forecasts or disclosing a fully accurate half year balance sheet. Yü’s disclosure was therefore inaccurate, resulting in a breach of its AIM Rule 10 obligations during the relevant period.
The LSE stated that, as well as ensuring documented procedures and protocols are in place, companies must ensure that they are appropriately reviewed and developed so that they are effective and are adapted to adequately address changes to the business, planned growth or other operational needs. Boards should be appropriately engaged in evaluating the effectiveness of the financial control environment and the framework for assuring the integrity of internal management information. Failure to maintain appropriate governance over the operational effectiveness of procedures and controls creates an unacceptable risk to an AIM company’s ability to monitor changes to expected financial performance and meet any consequential AIM Rules disclosure obligations.
Although the LSE waived the fine (citing the uncertainties and potential financial challenges for Yü arising from the COVID-19 pandemic), it is clear that the LSE will actively enforce the AIM Rules and issue public censures where necessary.