You should read this if you are a sponsor.
The FCA has published Primary Market Bulletin No.7. In this issue the FCA is consulting on draft notes to address its new statutory powers in relation to the supervision and discipline of sponsors. The FCA is also consulting on a new note on dealing with the FCA in an open and co-operative manner, previously referred to in Primary Market Bulletin No. 6.
Additional powers to supervise and discipline sponsors
This draft technical note explains the FCA’s power to:
- impose restrictions or limitations on sponsor services; the FCA sees this as flexible alternative to the previous regime, allowing it to approve a new applicant or maintain a sponsor’s approval where previously it might not have met the approval criteria. For example, the FCA can limit or restrict the scope of sponsor services where a sponsor or new applicant does not have the relevant experience or appropriate systems and controls to provide the complete range of services. The FCA is most likely to consider these types of restrictions/limitations appropriate where an applicant has employees who can demonstrate relevant experience and expertise of providing sponsor services solely to premium listed investment companies. In such a scenario the applicant may have limitations imposed on its approval such that it can only provide sponsor services to premium listed investment companies subject to LR 15 and LR 16. The FCA will use this power on a generic basis, not transaction-by-transaction;
- suspend a sponsor’s approval at a sponsor’s request; a sponsor may wish to take advantage of this procedure where there is an unplanned, temporary or permanent loss of experienced members of staff affecting its ability to meet the sponsor approval criteria. However, the FCA warns that if a suspension lasts too long, a sponsor may find itself unable to satisfy the criteria in any event as a sponsor’s experience needs to be continuously refreshed; and
- suspend or impose restrictions or limitations on sponsor services to further its operational objectives (consumer protection, market integrity and competition). The FCA expects to use this power rarely, where it needs to act urgently to prevent a sponsor from either agreeing or continuing to provide sponsor services on a particular transaction. For example, where the FCA feels that a sponsor is unable to manage an actual or perceived conflict of interest.
The accompanying draft procedural note provides guidance on the procedural aspects of the matters described above.
Dealing with the FCA in an open and co-operative manner (LR8.3.5R)
Under the Listing Rules, sponsors are obliged to deal with the FCA in an open and co-operative way at all times. In this draft technical note, the FCA has identified conflicts identification and management as an area where it expects sponsors to be communicating with it at an early stage. If there is any doubt as to whether a conflict can be effectively managed, this should be discussed with the FCA before providing a sponsor service.
Sponsors should also consider this principle when they are entering into contractual arrangements. For example, a sponsor should consider its regulatory obligations when negotiating its position on a NDA and the need to carve-out disclosures required by the FCA. Some Listing Rules do not impose a positive obligation on a sponsor to notify the FCA of an issue. However, as LR8.3.5R applies to all obligations placed on sponsors, they should consider whether a positive duty of disclosure exists, particularly bearing in mind that the rule states that a sponsor “must” deal with the FCA in an open and co-operative way.
Comments on this guidance must be received by 19 November 2013.