MAR Compliance

On 20 December, the Financial Conduct Authority (FCA) published a final notice imposing a fine of £45,000 on Mr Kevin Gorman, a senior executive and person discharging managerial responsibility (PDMR) at Braemar Shipping Services plc, for breaching Article 19(1) of the Market Abuse Regulation (MAR) in that he notified neither his employer nor the FCA of three personal share dealings.

This is the first enforcement action taken by the FCA for a breach of this kind and reference to this case, and the associated penalty, may be helpful to governance professionals seeking to engage the attention of executive colleagues.

Although not a main board director, Mr Gorman was one of the five members of the company’s executive committee. As such he received management accounts on a monthly basis and board-level confidential information was also discussed at executive committee meetings. The FCA have taken the view that he therefore had, or was likely to have, inside information and was consequently a PDMR for the purposes of MAR compliance.

In July 2016, shortly after MAR came into effect, Mr Gorman and other senior executives were notified of their obligations under MAR, obligations which largely reflected the company’s share dealing policy in place since at least 2014, and advised of their PDMR status. Despite being chased, Mr Gorman did not return his signed acknowledgement of this information until November 2016.

Notwithstanding this notification and the company’s dealing code to which he was subject, Mr Gorman carried out three trades on 24 August 2016, 10 November 2016 and 18 January 2017 without notifying either the company or the FCA. Mr Gorman notified the company of the third trade on 24 January 2017 following an email reminder about the share dealing policy. The earlier trades were then identified by the FCA.

One interesting aspect of the FCA sanction was the detail provided of the calculation used under the FCA’s five-step process – assessing disgorgement of benefits; the seriousness of the breach; mitigating and aggravating factors; an adjustment for deterrence; and a settlement discount. In this case, the seriousness of the breach was assessed at level 2 of the five levels of seriousness and the penalty at this stage was based on Mr Gorman’s income in the twelve months preceding the end of the breach period. This was £643,684 and so a penalty of £64,300 would have been levied were the matter not resolved at an early stage of the process, qualifying for a 30% discount. More serious breaches might attract a penalty of up to 40% of the qualifying income, plus disgorgement of benefit and an adjustment for deterrence. The penalty for non-compliance with MAR may, therefore, seem steep at £45,000 but could, potentially, have been significantly higher.

It is also important to note that the FCA has explicitly stated that it makes 'no finding…to the adequacy of Braemar’s compliance with, and its policies and procedures in relation to MAR'.