ENF 21 applies to persons whose conduct is covered by any provision imposed by or under Part VI of the Act (for example, the Part 6 rules). This includes directors and formers directors who may have been knowingly involved in a relevant contravention.

In this chapter, and unless the context so requires, references to FSA are to the FSA when it is performing functions as the competent authority under Part VI of the Act (see section 72(1)).

The purpose of:

1. (1)

   ENF 21.2 to ENF 21.4 is to explain the FSA's policy on how it will use its powers to investigate in support of its enforcement functions;

2. (2)

   ENF 21.5 to ENF 21.9 is to describe the FSA's approach to discipline;

3. (3)

   ENF 21.10 is to explain the FSA's policy on how it will use its power to cancel a sponsor's approval.

Section 93 of the Act (Statement of policy) requires the FSA to prepare and publish a statement of its policy with respect to the imposition and amount of penalties under section 91. ENF 21.6 to ENF 21.7 constitute the FSA's statement of policy under section 93. The FSA may at any time alter or replace this statement of policy after consultation. The FSA will have regard to this statement of policy in exercising, or deciding whether to exercise, its power under section 91 of the Act (Penalties for breach of Part 6 rules).

Under section 97 of the Act (Appointment by competent authority of persons to carry out investigations), the FSA may appoint one or more competent persons to conduct an investigation on its behalf if it appears to the FSA that there are circumstances suggesting that:

1. (1)

   there may have been a contravention of a provision of Part VI of the Act or of Part 6 rules or a provision otherwise made in accordance with the Prospectus Directive;

2. (2)

   a person who was at the material time a person mentioned in section 91(1) or (1A) of the Act has been knowingly concerned in a contravention of a provision of Part VI of the Act or of Part 6 rules or a provision otherwise made in accordance with the Prospectus Directive by that person; or

3. (3)

   there may have been a breach of sections 85 or 87G of the Act.

An investigator appointed under section 97 is treated under the Act as if they were appointed under section 167(1). It follows that an investigator appointed under section 97 will have the powers of a section 167 investigator, as outlined in ENF 2.4.

The FSA's primary aim when appointing an investigator will be to confirm whether a provision of Part VI of the Act (sections 85 and 87G) or Part 6 rules or a provision otherwise made in accordance with the Prospectus Directive have been complied with and, if they have not, to determine the nature and extent of any breach. The FSA will usually appoint a member of FSA staff as an investigator, as allowed by section 170(5) of the Act.

The FSA may be alerted to possible breaches by complaints from the public or investors, by referrals from prosecuting authorities or through its information gathering activities. It will assess on a case by case basis whether to carry out a formal investigation, after considering all the available information. Factors it will take into account are:

1. (1)

   the elements of the suspected breach;

2. (2)

   whether the FSA considers that the persons concerned are willing to co-operate with it;

3. (3)

   whether obligations of confidentiality inhibit individuals from providing information without the FSA having recourse to its formal powers;

4. (4)

   evidence and information needed to substantiate any suspected breach;

5. (5)

   availability and accessibility of related information or evidence; and

6. (6)

   any other factors (so far as the FSA considers them to be applicable).

The FSA's policy on the use of powers by investigators appointed under section 97 is the same as that described in ENF 2.11.1 G to ENF 2.11.2 G in the context of investigators appointed by the FSA under powers contained in other Parts of the Act.

The FSA has powers under section 170 of the Act to control and direct investigators appointed under section 97 (see ENF 2.11.4 G and ENF 2.11.5 G for a summary of the powers under sections 170(7) and (8)).

The FSA's obligations, powers and policy on various further matters related to investigations under section 97 broadly mirror those described in the following ENF 2 guidance:

1. (1)

   ENF 2.12.1 G to ENF 2.12.3 G, ENF 2.12.6 G and ENF 2.12.7 G - Notification of the person under investigation.

2. (2)

   ENF 2.10 - Provisions of the Act on protected items, banking confidentiality, and admissibility of statements to investigators.

3. (3)

   ENF 2.14 - Interviews and interview procedures.

4. (4)

   ENF 2.15 - Powers to enforce requirements and to co-operate with information gathering and investigation powers.

The FSA will not normally make public that it is or is not investigating a particular matter under section 97, or the outcome of any such investigation. Its policy in this area is broadly the same as that described in ENF 2.13 in the context of investigations by the FSA under other provisions of the Act, subject to the fact that slightly different considerations to those listed at ENF 2.13.4 G will be applied. Specifically, where it is investigating any matter, the FSA will, in exceptional circumstances, make a public announcement that it is doing so if it considers such an announcement is desirable to:

1. (1)

   maintain public confidence in the market; or

2. (2)

   maintain the smooth operation of the marker; or

3. (3)

   protect investors; or

4. (4)

   prevent widespread malpractice; or

5. (5)

   help the investigation itself.

In accordance with section 349 of the Act (Exceptions from section 348), the FSA may also make referrals of information gathered under LR 1.3.1R and in investigations where circumstances indicate that such a referral is appropriate.

The disciplinary measures available to the FSA are set out in Part VI of the Act and consist of:

1. (1)

   financial penalties (described in ENF 21.7); and

2. (2)

   public censures (described in ENF 21.8).

Disciplinary sanctions are one of the regulatory tools available to the FSA. They are not the only tool, and it may be possible to address instances of non-compliance without recourse to disciplinary action. However, the effective and proportionate use of the FSA's powers to enforce requirements imposed by or under Part VI of the Act (including the Part 6 rules) will play an important role in supporting the FSA's pursuit of its regulatory functions.

The imposition of financial penalties and the issuance of censures for breaches of the requirements imposed by or under Part VI of the Act help to promote high standards of conduct and ensure that regulatory standards are being upheld by deterring persons from further breaching the requirements and by demonstrating generally the benefits of compliant behaviour. An increased public awareness of regulatory standards may also contribute to the protection of investors.

Non-disciplinary measures are also available to the FSA where it considers that it is necessary to take protective or remedial action. These include the following.

1. (1)

   where the smooth operation of the market is, or may be, temporarily jeopardised or where the protection of investors so requires, the FSA may suspend, with effect from such time as it may determine, the listing of any securities at any time and in such circumstances as it thinks fit (whether or not at the request of the issuer or its sponsor on its behalf);

2. (2)

   when the FSA is satisfied that there are special circumstances which preclude normal regular dealings in any listed securities, it may cancel the listing of any security;

3. (3)

   where there are reasonable grounds to suspect non compliance with the disclosure rules and transparency rules, the FSA may require the suspension of trading of a financial instrument with effect from such time as it may determine; and

4. (4)

   where there are reasonable grounds for suspecting that a provision of Part VI of the Act, a provision contained in the prospectus rules, or any other provision made in accordance with the Prospectus Directive has been infringed, the FSA may:

   1. (a)

      suspend or prohibit the offer to the public of transferable securities as set out in section 87K of the Act; or

   2. (b)

      suspend or prohibit admission of transferable securities to trading on a regulated market as set out in section 87L of the Act.

Under section 87P of the Act (Exercise of powers at request of competent authority of another EEA State), the FSA may exercise its powers under sections 87K and 87L of the Act to assist a competent authority of an EEA State in the performance of its functions under the law of that State in connection with the Prospectus Directive.

The Act also provides the FSA with criminal prosecution powers in relation to offences under sections 85. These are described in ENF 15.

The FSA has criminal prosecution powers in relation to insider dealing and misleading statements and practices. Additional considerations apply in determining whether the FSA will take disciplinary action for cases of alleged market abuse (section 123 of the Act) (see ENF 14).

In certain cases, despite having concerns regarding the behaviour of a person, the FSA may decide that it is not appropriate, having regard to all the circumstances of the case, to bring formal disciplinary action. For example, the breach may be minor in nature or degree, or the person may have taken immediate and full remedial action (although these types of factor by themselves will not determine the course of action taken by the FSA). In these types of case, the FSA considers that it will be helpful for the person to be made aware that they came close to being subject to formal disciplinary action, and may to that end, if appropriate, give a private warning.

The FSA's general approach to the content of a private warning in this context and to the relevance of such a warning for disciplinary action in relation to future breaches of provisions imposed by or under Part VI of the Act will follow, in broad terms, the approach described in ENF 11.3.4 G and ENF 11.3.6 G to ENF 11.3.9 G in the context of private warnings given to firms or approved persons.

In determining whether to take disciplinary action, the FSA will consider the full circumstances of each case. A number of factors may be relevant for this purpose. The following list of factors is not exhaustive; not all of these factors may be relevant in a particular case, and there may be other factors that are relevant:

1. (1)

   whether the breach reveals serious or systemic weaknesses in all or part of the person's established procedures for compliance with provisions imposed by or under Part VI of the Act;

2. (2)

   whether the person has brought the misconduct to the attention of the FSA;

3. (3)

   whether the person has admitted the misconduct and provides full and immediate co-operation to the FSA;

4. (4)

   whether the person has previously given any undertakings to the FSA to do or not to do a particular act or engage or not to engage in particular behaviour;

5. (5)

   whether the FSA has previously requested the person to take remedial action, and the extent to which such action has been taken;

6. (6)

   whether the FSA has given any guidance on the conduct in question and the extent to which the person has sought to follow the guidance (the FSA will not take action against a person for behaviour in line with current written guidance or binding oral guidance in the circumstances contemplated by the guidance);

7. (7)

   where other regulatory authorities (including the FSA under other regulatory powers) propose to take action in respect of the same or similar breach which is under consideration by the FSA, the FSA will consider whether their action would be adequate to address the FSA's concerns, or whether it would be appropriate for the FSA to take its own action.

The primary responsibility for ensuring compliance with Part VI of the Act, the Part 6 rules or the prospectus rules, or a provision otherwise made in accordance with the Prospectus Directive or a requirement imposed under such provision rests with the persons identified in section 91(1) and section 91(1A) of the Act respectively. Normally therefore, any disciplinary action taken by the FSA for contraventions of these obligations will in the first instance be against those persons.

However, in the case of a contravention by a person referred to in section 91(1)(a) or section 91(1)(b)(i) or section 91(1A) of the Act ("P"), where the FSA considers that another person who was at the material time a director of P was knowingly concerned in the contravention, the FSA may take disciplinary action that person. In circumstances where the FSA does not consider it appropriate to seek a disciplinary sanction against P (notwithstanding a breach of relevant requirements by such person), the FSA may nonetheless seek a disciplinary sanction against any other person who was at the material time a director of P and was knowingly concerned in the contravention.

Persons discharging managerial responsibilities within an issuer and their connected persons, who has requested or approved the admission of a financial instrument to trading on a regulated market, and connected persons have their own responsibilities under the disclosure rules and transparency rules, as set out in DTR 3 for which they are primarily responsible. Accordingly, disciplinary action for a breach of the disclosure rules and transparency rules will not necessarily involve the issuer.

The Listing Principles are set out in LR 7. The Listing Principles are a general statement of the fundamental obligations of issuers of equities with a primary listing. The Listing Principles derive their authority from the FSA's rule making powers set out in section 74(4) of the Act. A breach of a Listing Principle will make an issuer of equities with a primary listing liable to disciplinary action by the FSA.

In determining whether a Listing Principle has been broken, it is necessary to look to the standard of conduct required by the Listing Principle in question. Under each of the Listing Principles, the onus will be on the FSA to show that an issuer has been at fault in some way. This requirement will differ depending upon the Listing Principle.

In certain cases, it may be appropriate to discipline an issuer on the basis of the Listing Principles alone. Examples include the following:

1. (1)

   where there is no detailed listing rule which prohibits the behaviour in question, but the behaviour clearly contravenes a Listing Principle;

2. (2)

   where an issuer of equities with a primary listing has committed a number of breaches of detailed rules which individually may not merit disciplinary action, but the cumulative effect of which indicates the breach of a Listing Principle.

The Act provides further that if in such a case the FSA considers that another person, who was at the material time a director of a person referred to in section 91(1)(a), (1)(b)(i) or (1A) of the Act, was knowingly concerned in the contravention, it may impose on him a penalty of such amount as it considers appropriate (section 91(2)).

The FSA will consider all the relevant circumstances of a case when it determines the level of financial penalty (if any) that is appropriate and in proportion to the contravention in question. The FSA does not use a tariff of penalties for different kinds of breach. This is because there are very few cases in which the circumstances are essentially the same and the FSA considers that, in general, the use of a tariff for particular kinds of breach would inhibit the flexible and proportionate approach it takes in this area.

The FSA will consider any of the following factors that may be relevant to the circumstances of a case when it determines the amount of a penalty to be imposed on a person. The following list is not exhaustive; not all of these factors may be relevant in a particular case, and there may be other factors that are relevant:

1. (1)

   (The seriousness of the misconduct) The FSA recognises the need for a financial penalty to be proportionate to the nature and seriousness of the breach in question and that, by their nature, some breaches may be more serious than others. The following may be relevant:

   1. (a)

      the duration and frequency of the breach;

   2. (b)

      whether the breach revealed serious or systemic weaknesses in the person's procedures;

   3. (c)

      the impact of the breach on the orderliness of capital markets, including whether public confidence in those markets has been damaged;

   4. (d)

      the loss or risk of loss caused to investors or other market participants; and

   5. (e)

      the extent to which the breach departs from current market practice.

2. (2)

   (The extent to which the breach was deliberate or reckless) In determining whether a breach was deliberate, the FSA may have regard to whether the behaviour of the person was intentional; that is, whether the person intended or foresaw the consequences of their behaviour. The matters to which the FSA may have regard in determining whether a breach was reckless include, but are not limited to, whether the person:

   1. (a)

      failed to comply with the issuer's or applicant's procedures and/or FSAguidance;

   2. (b)

      took decisions beyond their field of competence; and

   3. (c)

      gave consideration to the consequences of the behaviour that constitutes the breach.

   If the FSA decides that the conduct was deliberate or reckless, it is more likely to impose a higher penalty on the person than would otherwise be the case.

3. (3)

   (Whether the person on whom the penalty is to be imposed is an individual) Individuals will not always have the resources of a body corporate and this will be taken into account when determining the amount of a penalty. This will be of particular relevance when assessing any verifiable evidence of serious financial hardship or financial difficulties if the individual were to pay the level of penalty decided on in respect of the particular breach.

4. (4)

   (The circumstances of the person on whom the penalty is to be imposed) The FSA will have regard to the size, financial resources and other circumstances of the person, and may take into account verifiable evidence of serious financial hardship or financial difficulties if the person were to pay the level of penalty associated with the particular breach. Size and resources may be relevant considerations for the following reasons:

   1. (a)

      the degree of seriousness of a breach may be linked to the size of the issuer or of the applicant. For example, a systemic failure in a large issuer or large applicant could damage or threaten to damage a much larger number of investors than would be the case with a small issuer or small applicant. In considering seriousness, the FSA will have regard to the length of time over which the breach occurred;

   2. (b)

      the size and resources of the person may also be relevant in relation to mitigation, in particular what steps the person took after the breach had been identified. The FSA will take into account what it is reasonable to expect from the person in relation to its size and resources and factors such as what proportion of a person's resources were used to resolve a problem; and

   3. (c)

      the purpose of a penalty is not to render a person insolvent or threaten their solvency. Where this would be a material consideration, the FSA will consider, having regard to all other factors, whether a lower penalty would be appropriate. This is most likely to be relevant to persons with less financial resource. However, if a person reduces their net worth with the purpose of reducing its ability to pay a financial penalty, for example by transferring assets to group companies or third parties, the FSA will take account of those transferred assets when determining the amount of a penalty.

5. (5)

   (The amount of profits accrued or loss avoided) The FSA may have regard to the amount of profits accrued or loss avoided as a result of the breach. For example:

   1. (a)

      the FSA will propose a penalty which is consistent with the principle that a person should not benefit from their breach; and

   2. (b)

      the penalty should also act as an incentive to the person (and others) to comply with regulatory standards.

6. (6)

   (Conduct before the breach) The FSA may have regard to any professional advice that was sought by the person before the breach occurred and whether the person followed that professional advice.

7. (7)

   (Conduct following the breach) The FSA may also take into account the conduct of the person in bringing the breach to the FSA's attention, including:

   1. (a)

      whether the person brought the breach to the attention of the FSA;

   2. (b)

      how quickly, effectively and completely the person brought the breach to the FSA's attention;

   3. (c)

      the degree of co-operation the person showed during the investigation of the breach; and

   4. (d)

      any remedial steps the person has taken since the breach was identified, including: identifying whether investors suffered loss, compensating them, taking disciplinary action against staff involved (if appropriate) and ensuring that similar problems cannot arise in the future.

8. (8)

   (Disciplinary record and compliance history) The FSA may take into account the previous disciplinary record and general compliance history of the person, including whether the FSA has taken any previous formal disciplinary action against the person. For example, the disciplinary record of the person could lead to the FSA increasing the penalty where that person has committed similar breaches in the past.

9. (9)

   (Previous action taken by the FSA) The FSA will seek to ensure consistency when it determines the appropriate level of penalty. If it has taken disciplinary action previously in relation to a similar breach, this will clearly be a relevant factor.

10. (10)

    (Action by other regulatory authorities) Where action by other regulatory authorities relates to the person in question, this may be taken into consideration.

The Act provides that instead of imposing a penalty, the FSA may publish a statement of censure (section 91(3)). Where the FSA considers it inappropriate to impose a financial penalty on a person, it may consider that a statement censuring that person may have particular value.

The FSA has no statutory power to impose a financial penalty on a sponsor. As such any references in ENF 21 to financial penalties being a disciplinary sanction, or an alternative disciplinary sanction, do not apply to sponsors. However, the Act enables the FSA to publish a statement censuring a sponsor (under section 89 of the Act (Public censure of sponsor)) where it considers that the sponsor has contravened any requirement imposed on him by listing rules made as a result of section 88(3)(c) of the Act.

The Act further provides that where the FSA considers that a person identified in section 87M of the Act has failed to comply with his obligations under Part VI of the Act, it may publish a statement to that effect (section 87M).

The FSA regards the decision to issue a statement of censure as a serious sanction. The FSA is aware of the effect such a statement may have on the reputation or business of such a person.

The criteria the FSA may take into account when determining whether it is appropriate to issue a public censure are similar to those for determining the level of financial penalty listed in ENF 21.7.6 G. The starting point is that the FSA will consider all the relevant circumstances of the breach. Some particular considerations may be relevant when the FSA determines whether to issue a public censure rather than (in the case only of persons who may be the subject of a financial penalty under section 91(1) of the Act) impose a financial penalty. The following list is not exhaustive; not all of these factors may be relevant in a particular case, and there may be other factors that are relevant:

1. (1)

   if the person has made a profit or avoided a loss as a result of the misconduct, this may be a factor in favour of a financial penalty, on the basis that a person should not be permitted to benefit from their misconduct;

2. (2)

   if the misconduct is more serious in nature or degree, this may be a factor in favour of a financial penalty, on the basis that the sanction should reflect the seriousness of the misconduct: other things being equal, the more serious the misconduct, the more likely the FSA is to impose a financial penalty;

3. (3)

   if the person has brought the misconduct to the attention of the FSA, this may be a factor in favour of a public censure, depending upon the nature and seriousness of the misconduct;

4. (4)

   if the person has admitted the misconduct and provides full and immediate co-operation to the FSA, this may be a factor in favour of a public censure, depending upon the nature and seriousness of the misconduct;

5. (5)

   if the person has a poor disciplinary record or compliance history (for example, where the FSA has previously brought disciplinary action in relation to the same or similar behaviour) this may be a factor in favour of a financial penalty, on the basis that it may be particularly important to deter future cases;

6. (6)

   if the person has inadequate means (excluding any manipulation or attempted manipulation of their assets) to pay the level of financial penalty which their misconduct would otherwise attract, this may be a factor in favour of a lower level of financial penalty or a public censure. However, it would be in an exceptional case that the FSA would be prepared to agree to impose a public statement rather than a financial penalty, if a financial penalty would otherwise be the appropriate sanction. Examples of such exceptional cases could include:

   1. (a)

      verifiable evidence that a person would suffer serious financial hardship if the FSA imposed a financial penalty;

   2. (b)

      the likelihood of a severe adverse impact on a person's shareholders or a consequential impact on market confidence or market stability if the FSA imposed a financial penalty. However, this does not exclude the imposition of a financial penalty which will have an impact on a person's shareholders.

The FSA's policy on action involving other regulatory authorities mirrors that set out in ENF 11.8.1 G to ENF 11.8.5 G in this context.

The FSA may cancel a sponsor's approval if it considers that a sponsor has failed to meet the criteria for approval as a sponsor as set out in LR 8.6.5R.

The FSA recognises that its decision to cancel a sponsor's approval may have a substantial impact on the sponsor.

When considering whether to cancel a sponsor's approval, the FSA will take into account all relevant factors, including, but not limited to, the following:

1. (1)

   the competence of the sponsor;

2. (2)

   the adequacy of the sponsor's systems and controls;

3. (3)

   the sponsor's history of compliance with the listing rules;

4. (4)

   the nature, seriousness and duration of the suspected failure of the sponsor to meet (at all times) the criteria for approval as a sponsor set out in LR 8.6.5R;

5. (5)

   any matter which the FSA could take into account if it were considering an application for approval as a sponsor made under section 88(3)(d) of the Act.