Prudential failed to deal with the FSA in an open and cooperative manner when it was seeking to acquire AIA in early 2010, because it did not inform the FSA of the proposed acquisition until after it had been leaked to the media on 27 February 2010.
Prudential should have informed the FSA at the earliest opportunity to allow the FSA to decide whether to approve or reject the deal on regulatory grounds. It failed to disclose the proposed transaction even when, at a meeting between the FSA and Prudential executives on 12 February 2010, the FSA asked detailed questions about Prudential’s strategy for growth in the Asian market and its plans for raising equity and debt capital.
The proposed transaction’s size and scale would have transformed the Group’s financial position, strategy and risk profile and involved a planned rights issue of £14.5bn, which would have been the biggest ever in the UK. The transaction had the potential to impact upon the stability and confidence of the financial system in the UK and abroad.
In the circumstances the FSA had a regulatory responsibility to conduct an intensive, detailed and thorough scrutiny of the proposed transaction. The failure to inform the FSA was significant because it resulted in the FSA having to consider highly complex issues within a compressed timescale before making a decision as to whether to suspend Prudential’s shares. It narrowed the FSA’s options in scrutinising the transaction, risked delaying the publication of Prudential’s subsequent rights issue prospectus and hampered the FSA’s ability to assist overseas regulators with their enquiries in relation to the transaction.
The FSA considers that Prudential wrongly allowed its judgement to be overly influenced by its concern about the risk of leaks. This concern meant Prudential failed to give due weight to the importance of complying with its regulatory obligations, even when explicitly advised by its own advisers of the importance of keeping the regulator informed.
As Prudential’s Group Chief Executive, Tidjane Thiam played a significant role, with others, in the decision not to contact the FSA about the proposed acquisition. Therefore, he was knowingly concerned in this breach. In censuring him, the FSA made no finding of lack of fitness and propriety in relation to Tidjane Thiam.
Tracey McDermott, FSA director of enforcement and financial crime, said:
“The FSA expects to have an open and frank relationship with the firms it supervises and with listed companies. It is essential that firms give due consideration to their regulatory obligations at all times. In particular, timely and proactive communication with the FSA is of fundamental importance to the functioning of the regulatory system and the integrity of the market.
“Prudential, led by Thiam as CEO, failed to give due consideration to its obligation to inform the FSA of this transaction, which would have had a huge impact on the group had it gone through. That was a serious error of judgement for which Prudential is paying the price. Firms should be in no doubt as to the importance of early communication with the regulator in respect of transformational transactions to avoid market and investor disruption.
“Thiam has also been censured in relation to his role in this matter. This case should send a clear message to all board members of their collective and individual responsibility for the decisions they make on behalf of their companies.”
The investigation was into past events and does not concern the current conduct of the management of the Prudential Group. The FSA accepts that Prudential did consider their obligations in forming their assessment in respect of informing the regulator. Therefore, although the FSA considers that the circumstances of these breaches are serious, the FSA does not consider they were reckless or intentional.
Notes to editors
- Prudential plc[1] was fined £14m for failing to deal with the FSA in an open and co-operative manner, thereby breaching the FSA’s Listing Principle 6.
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The Prudential Assurance Company Limited[2] (PAC) was fined £16m for failing to deal with the FSA in an open and co-operative manner, thereby breaching Principle 11 of the FSA’s Principles for Businesses.
Tidjane Thiam[3] was censured for being knowingly concerned in PAC’s breach of Principle 11.
- Listing Principle 6 provides that: “A listed company must deal with the FSA in an open and co-operative manner.”
- Principle 11 states “A firm must deal with its regulators in an open and co-operative way, and must disclose to the FSA appropriately anything relating to the firm of which the FSA would reasonably expect notice.”
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
- The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013 as required by the Financial Services Act 2012[4].