On 20 December 2019, the UK financial services regulator, the Financial Conduct
Authority (“FCA”), announced that it had fined a senior executive of a UK-listed
company £45,000 for a failure to disclose several trades in the company’s shares, as
required under Article 19 of the Market Abuse Regulation (“MAR”).
Background. Article 19 of MAR provides that persons discharging managerial
responsibilities, as well as persons closely associated with them, must notify the issuer
and the competent authority of every transaction conducted on their own account
relating to the shares, debt instruments or other linked financial instruments of that
issuer. The notification must be made no later than three business days after the date of
the transaction. Article 19 also imposes an obligation on the issuer to ensure that this
information is made public within the same three-day period.
Persons discharging managerial responsibilities (“PDMRs”) are those who are members
of the administrative, management or supervisory body of an issuer or senior executives
with access to inside information and power to take managerial decisions affecting the
future developments and business prospects of the entity.
The Case. Mr. Gorman was employed as the Managing Director of the Logistics
Division of Braemar Shipping Services plc (“Braemar”), a company listed on the main
market of the London Stock Exchange. Although not a member of the Board of
Directors of Braemar, Mr. Gorman was a senior employee and a member of Braemar’s
Executive Committee. For the purposes of MAR, he was a PDMR.
In 2016, when MAR came into effect, Braemar informed Mr. Gorman that he was a
PDMR. He was provided with a copy of Braemar’s share-dealing policy, which required
- Prior to dealing in Braemar’s shares, a PDMR must make a written application for
clearance to deal.
- Following a trade in Braemar’s shares, a PDMR must notify Braemar (within one
business day) and Braemar’s competent authority, the FCA (within three business
days) in writing, of the transaction.
Braemar also provided Mr. Gorman with a briefing pack explaining his responsibilities
as a PDMR under MAR. He signed an acknowledgement to say that he had received and
read the information and understood his legal obligations. In his defence, Mr. Gorman
stated that he did not read or check the documents and was not aware of his obligations
as a PDMR. The FCA made it clear that it does not consider a claim of ignorance of
obligations as a defence for a breach of MAR.
In 2016–2017,Mr. Gorman sold Braemar shares on three occasions over a six-month
period and failed to notify either Braemar or the FCA of any of these transactions. He
also failed to seek prior authorisation from Braemar to trade as required by the
company’s internal policies.
The FCA’s Decision. The FCA found that each of Mr. Gorman’s three failures to notify
a trade in Braemar’s shares to the company or the FCA amounted to a breach of Article
19(1) of MAR and decided to impose a £45,000 fine on Mr. Gorman.
The detailed methodology for how the fine was calculated is set out in the FCA’s Final
Notice on the case. In the first instance, the FCA considered Mr. Gorman’s income at
the time of the breaches, which was £643,684. They also looked at various factors which
reflected the impact and nature of the breach and whether it was committed
deliberately or recklessly. Taking all this into consideration, the FCA set the fine as 10%
of Mr. Gorman’s annual income, but taking into account Mr. Gorman’s co-operation
with the investigation, the FCA applied a 30% discount to the fine, bringing it to £45,000.
It should be noted that the FCA has powers to impose a fine up to 40% of an individual’s
income in the case of a breach of MAR.
Key Takeaways. It is important to note is that there was no suggestion that
Mr. Gorman was trading in possession of inside information or in breach of any other
obligations under MAR or any insider dealing regime. His offence was simply a failure
to notify his share dealings as required by Article 19 of MAR.
When detailing the factors that “aggravated” the offence, the FCA noted that in the
months prior to MAR coming into force in July 2016, the FCA and other agencies had
published a large volume of materials relating to the implementation of MAR, including
the obligations of PDMRs, and such materials were widely accessible. The FCA made it
clear that it does not consider a claim of ignorance of obligations as a defence for a
breach of MAR.
This is the first time that the FCA has used its powers to impose a fine for a breach of
the PDMR reporting requirements and it indicates both that the FCA monitors
breaches of obligations under Article 19 of MAR and its willingness to take action for
breaches of MAR by PDMRs. This decision underlines the importance of PDMRs
having a clear understanding of, and complying with, their reporting and disclosure
obligations under MAR.