The FCA has imposed on Cathay International Holdings Limited a financial penalty of £411,000, for breaches of the Listing Principles and of the Disclosure Rules and Transparency Rules ("DTRs"). It has also imposed fines on its CEO and on its FD for being knowingly concerned in the breaches (each fined in relation to different breaches).
Cathy is a holding company based in Hong Kong, but listed on the London Stock Exchange. On 29 December 2015, Cathay issued a trading update, which anticipated a performance markedly below market expectations. On the day of its announcement, its share price dropped by 18.2%.
The FCA found the following:
- Listing Principle 1 breach
In breach of Listing Principle 1, between 21 August 2015 and 29 December 2015, Cathay failed to have adequate procedures, systems and controls to comply with its obligations under the DTRs. It failed properly to forecast and monitor how it was performing against market expectations.
Until 6 December 2015, it failed to produce any completed year-end forecasts covering the whole of its business as to its expectations of its financial performance for the financial year ending 31 December 2015; and
Performance monitoring did not include any means of assessing whether the performance of Cathay constituted inside information satisfying the test set out in section 118C of FSMA.
- DTR 2.2.1R and Premium Listing Principle 6 breaches
Cathay failed to disclose to the market as soon as possible on or shortly after 6 December 2015 a material change in its actual and expected financial performance for the year ending 31 December 2015. This was at a time when, as a result of the deterioration of its performance, it was aware of circumstances in which there was projected to be a 56% deviation from market expectations of the loss after tax. This constituted breaches both of DTR 2.2.1 and Premium Listing Principle 6.
- Listing Principle 2 breach
Contrary to Listing Principle 2, Cathay failed to deal with the FCA in an open and co-operative manner. This related to its provision of inaccurate information to the FCA in 2016, when it corresponded with the FCA about the timing of the announcement it had made in December 2015. The FCA accepted that Cathay did not intend to mislead it. However, it did find that Cathay was aware that the information being provided was not an accurate record.
The FCA considered the breaches by Cathay to be particularly serious as Cathay was unable to comply with its obligations as a listed company, and its procedures, systems and controls were so inadequate that it was unable to keep the market properly informed of its financial performance. As a result, there was a risk that investors would make decisions based on incomplete information.
The FCA imposed a financial penalty on Cathay in the amount of £411,000. It also fined its CEO Mr Lee £214,300 and its FD Mr Siu £40,200.
A number of interesting matters arise from these Final Notices.
First, they are significant by virtue of being further DTR cases. This indicates the seriousness with which the FCA treats disclosure issues, and the systems and processes that give rise to them.
Second, and related to that, the Notices indicate that these were breaches at the more serious level. Cathay's 2015 breaches were assessed to be of seriousness level 4, where Level 5 is the most serious.
Third, and on rather a hot topic, it is significant to see that Cathay waived privilege in advice from its lawyers on 3 December 2015 that it could not delay disclosure to coincide with another later announcement. Despite waiving privilege in legal advice that helped make the FCA's case against it, the FCA did not treat this co-operation as providing sufficient mitigation to warrant a reduction in the financial penalty.
Fourth, consistent with the agenda of accountability, both the CEO and the FD were fined for their actions. Where corporates are sanctioned, we can expect increasing actions against individuals.