Cavendish Securities PLC

FCA action

fine

1

in fines

£531k

most recent

August 2016

• Fined £530,500 on 9 August 2016

  The Financial Conduct Authority (the “FCA”) has imposed a financial penalty of £530,500 on Cenkos Securities Plc (“Cenkos”) of 6.7.8 Tokenhouse Yard, London EC2R 7AS, for failures in its sponsor services business.  The FCA’s action took effect on 9 August 2016 and a copy of the Final Notice which sets out the reasons for the action is displayed on the FCA’s website and can be accessed via the following link: http://www.fca.org.uk/your-fca/documents/final-notices/2016/cenkos-securities-plc   The Authority considers that during the period from 1 April 2012 to 19 August 2015 (“the Relevant Period”) failed: to have appropriate systems and controls in place to carry out its role as a sponsor, in breach of LR 8.6.6 R; and in relation to a particular transaction, (i) failed to act with due care and skill, in breach of LR 8.3.3R and (ii) failed to take reasonable steps to ensure any communication or information it provided to the FCA was, to the best of its knowledge and belief, accurate and complete in all material respects, in breach of LR 8.3.1A R.   Sponsors are critical to the integrity of the Premium Listed equity market in London. They perform a dual role which involves providing expert advice and guidance to current and prospective companies with a Premium Listing and providing key regulatory assurances to the Authority.  As such, sponsors have an essential role to play in assisting the Authority to meet its objectives of maintaining the integrity of the market and ensuring an appropriate degree of consumer protection.  Sponsors are supervised by the UKLA, a department within the Authority, which maintains a list of approved sponsors on the Authority’s website.  In order to give the market confidence that firms included on the sponsor list are competent to act as sponsors, the Authority has put in place a series of supervisory processes and has placed ongoing requirements under LR 8 on sponsor firms. Due to the expert nature of the role of a sponsor, and the high standards attributed to a Premium Listing, the Authority expects firms providing sponsor services to put in place robust systems and controls, and act with due care and skill, in relation to their provision of sponsor services.  However, during the Relevant Period, Cenkos failed to do so.  In particular, Cenkos failed to put in place adequate systems and controls to ensure appropriate oversight of its sponsor services business, and to ensure that all deal teams were adequately supervised when carrying out sponsor services mandates.  Deficiencies in Cenkos’ systems and controls meant that some deal teams were left largely unchallenged and inadequately supervised which increased the risk that serious issues would occur, undetected, on those client mandates.  However, two of the business areas providing sponsor services, Investment Funds and Equity Capital Markets, had a higher level of supervision and challenge and had practices which were more appropriate to meet the risks which those areas’ sponsor services mandates posed.  This risk crystallised during the attempted transfer of a particular client from AIM to a Premium Listing on the LSE’s Main Market (“the Transaction”).  Cenkos did not carry out its sponsor role with the level of diligence and professional care that the Authority would expect.  Cenkos failed to identify and manage properly the key risks relating to whether the client would be able to demonstrate its eligibility for a Premium Listing.   Cenkos represented to the Authority that the client was eligible for a Premium Listing when it had not carried out adequate due diligence to support its submissions.   Cenkos failed to progress critical due diligence work streams and key reports, which were necessary to inform their submissions to the Authority and the drafting of the prospectus.  In fact, key reports had not been commenced by early June 2014, the target date for the Premium Listing.  As Cenkos did not undertake adequate due diligence, it was not in a position to ensure that the communications and information it provided to the Authority were accurate and complete.  Further, it failed also to properly understand and address the significant questions raised by the Authority during the Transaction regarding the client’s ability to demonstrate its eligibility, and it failed to consider the potential impact of a negative research piece published by Gotham City Research LLC on 22 April 2014 regarding the client, on the Transaction, the timetable, and any risk of investor detriment. Ultimately, the Transaction had to be abandoned, as Cenkos was unable to satisfy the Authority that the client satisfied the eligibility criteria for a Premium Listing at that time.   The questions regarding the client’s ability to demonstrate eligibility were highlighted by the Authority’s vetting process and not in the course of Cenkos carrying out its sponsor services role.  The Authority considers that Cenkos’ failure as regards its sponsor services systems and controls, and its failure as regards the Transaction, were sufficiently serious as to have created a risk of impact to market confidence in the Sponsor Regime.  Given the importance of sponsors in maintaining market confidence, the FCA regards these failings as particularly serious. Since these events Cenkos has worked to identify and address the issues which arose on the particular transaction, and to undertake an extensive remediation programme, in consultation with the UKLA, to improve and enhance its systems and controls around its sponsor services business. The Final Notice makes no criticism of any person other than Cenkos.  Further, any facts or findings in the Final Notice relating to deal teams should not be read as relating to all the members of that team, or even necessarily any particular individual in that team.