£4.65 million fine for breach of the Listing Rules

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The Financial Conduct Authority (FCA) has fined Asia Resource Minerals plc (ARM), formerly Bumi plc, just over £4.65 million for breaches of the Listing Rules (LR) and Disclosure Rules and Transparency Rules (DTR).

ARM was admitted to the premium section of the Official List in June 2011. In April 2013, ARM notified the UK Listing Authority that it would be unable to publish its 2012 annual report within the deadline set by DTR 4, owing to an ongoing review of the integrity of a number of items on the balance sheet of a subsidiary company. This included a review of historic potential related party transactions. ARM’s shares were suspended from trading for three months.

The FCA found that between the date of its admission to premium listing in June 2011 and 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 Listing Principle 2. It found also that ARM had 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 into a transaction that is, or may be, a related party transaction. The belated discovery of these failings meant that ARM was unable to publish its 2012 annual financial report within the four-month timeframe stipulated by DTR4.

As a consequence of these failings, according to the FCA, investors were deprived of the level of protection that should have been afforded by the Listing Rules.

ARM settled early with the FCA, qualifying it for a 30 per cent reduction in penalty.

This is the second time that the FCA has issued a final notice in relation to a listed company’s failure to comply with the Listing Rules applicable to related party transactions, Exillon Energy plc being the first in 2012. The ARM board had actually circulated the final notice in respect of Exillon Energy to senior management with a reminder of the need to comply with the Listing Rules; however, no further steps were taken to ensure the effectiveness of the group’s processes for related party transactions, which the FCA considered to be an aggravating feature, leading to an increase in the level of the fine.

Listed companies are required by LR 8.2.3R 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 LR and DTR.

WM comment

In this case ARM had in place policies and procedures to manage related party transactions, including a conflicts committee whose remit included monitoring related party transactions. However, that committee apparently met only infrequently and was hampered by a lack of disclosure by management of the subsidiary, which was an Indonesian company. A training workshop was held but the subsidiary’s management failed to attend. The case highlights that it is not enough to have policies in place; they need to be adhered to, and training needs to be delivered to relevant people (with refresher training where necessary).