The Financial Conduct Authority (FCA) has fined Asia Resource Minerals plc (ARM), formerly Bumi plc, £4,651,200 for having inadequate systems and controls to comply with its obligations as a listed company, breaching various rules applicable to listed companies and failing to identify related party transactions valued at just over £8m.
The FCA found that ARM committed serious breaches of Listing Principle (LP) 2, Listing Rules (LR) 8 and 11 and Disclosure and Transparency Rule (DTR) 4 in the period 28 June 2011 to 19 July 2013.
Georgina Philippou, acting director of enforcement and market oversight, said:
“The UK listing regime provides confidence to investors that listed companies adhere to a range of standards on governance and investor protection. The related party transaction rules protect minority investors in listed companies by ensuring that large shareholders and company directors do not unfairly benefit from their position.
“ARM should have been alive to the need for robust systems and controls to clearly identify related party transactions. ARM fell below the standards we expect; the failings were serious and went on for two years and ultimately led to the suspension of the company’s shares. We expect listed companies to comply with the UK Listing Rules from Day 1 of listing and the penalty in this case demonstrates that we will take strong action when companies fail to meet the required standards.”
ARM was admitted to the premium section of the Official List on 28 June 2011. On 19 April 2013, the company notified the UKLA that it would be unable to publish its 2012 Annual Financial Report (AFR) within the deadline set out in DTR4, due to an ongoing review of the integrity of a number of items on the balance sheet of its subsidiary, PT Berau Coal Energy Tbk. This review included historic potential related party transactions. On 22 April 2013, the company’s shares were suspended from trading for three months.
During the period from 28 June 2011 to 19 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 LP2. The company also 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 a transaction that is, or may be, a related party transaction. The belated discovery and review of these transactions, along with other financial irregularities, led to ARM’s failure to publish the 2012 AFR within the four months required by DTR4. ARM’s shares were returned from suspension in July 2013.
These failings were significant given that the structure of the company and its subsidiary director relationships gave rise to an increased risk of the occurrence of related party transactions. As a result of these failings, investors did not have the level of protection that should have been provided under the LRs in respect of transactions with related parties.
ARM agreed to settle at an early stage in the investigation and therefore qualified for a 30% reduction in penalty. Were it not for this discount the FCA would have imposed a financial penalty of £6,644,641.
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