Reckitt Benckiser Group plc – fine for failure to monitor share dealing by senior executives
The Financial Conduct Authority (FCA) has fined Reckitt Benckiser Group plc (RB) £539,800 for inadequate systems and controls to monitor dealing in its own shares by its senior executives. This failure contributed to late and incomplete disclosure to the market of share dealings by two senior executives.
The Model Code
RB is a company with a premium listing on the Main Market of the London Stock Exchange and, as such, is required to ensure that relevant employees and executives comply with the Model Code on share dealing set out in the Listing Rules. The purpose of the Model Code is to ensure that employees with access to price sensitive information deal in a company's shares only at an appropriate time (and not, for example, during close periods) and with appropriate consent. The Model Code also ensures that systems are in place so that a company can notify the market when executives and other applicable employees deal in its own shares.
The Model Code is therefore designed to promote trust in markets by regulating the dealing of shares by individuals with access to price sensitive information, as well by requiring timely disclosure of such dealings in accordance with the Disclosure and Transparency Rules.
This case involved two senior executives (or, in the parlance of the Listing Rules, persons discharging managerial responsibilities or PDMRs) and their dealings in RB's shares.
The first executive held his shares through a custodian. The custodian, on his instruction, had pledged his shares as collateral for a loan. The executive did not realise that this came under the ambit of "dealing" for the purpose of the Model Code and did not seek consent to deal from RB. Following the dealing, RB should have notified the market as soon as practicable, and by no later than the next business day. However, consent was not sought and no announcement was made.
The second executive disposed of some shares in RB. His recollection was that he had sought consent to deal in shares before doing so, but RB had no record of this and did not announce the share dealing to the market.
RB's approach to the Model Code
RB adopted the Model Code as its internal share dealing policy. The company secretary provided the PDMRs with a copy of the Model Code and an explanatory document by email in July 2005. In addition, RB made the Model Code generally available to its staff via its intranet and it was also available via the website of RB’s external share plan administrator. In subsequent years, RB had reminded all employees on an annual basis of its code of conduct, which included a reminder not to deal in shares during close periods and not to deal in its securities when in possession of inside information. However, no specific training was given to PDMRs regarding the Model Code or the requirements of the Disclosure and Transparency Rules.
It was noted that the vast majority of executive share dealing was handled by the share plan administrator, and that the administrator was required to confirm that consent had been given to deal before dealing took place and to notify RB of the share dealings. Generally, this ensured compliance with the Model Code. However, the relevant dealings by the two executives in question were not processed by the share plan administrator.
The FCA decision
The FCA found that RB had breached Listing Rule 9.2.8 and Listing Principle 11 by failing to require PDMRs to take all reasonable steps to secure their compliance with the Model Code.
RB was found to have breached Listing Principle 22 by failing to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations – it was possible for the executives to deal in shares without alerting RB, with the consequence that no announcement was made at the relevant time.
RB was found to have breached Disclosure and Transparency Rule (DTR) 3.1.4R(2) by failing to notify the market of share dealings by two PDMRs as soon as possible, and in any event by no later than the end of the business day following receipt of the information.
Finally, RB was found to have breached DTR 3.1.5R by failing to include all the required information in the notification to the market regarding the share dealings by the two PDMRs, when it did finally make an announcement.
RB agreed to settle at an early stage of the investigation qualifying for a 30% discount, without which the FCA would have imposed a financial penalty of £771,190.
In its press release about the fine, the FCA noted that it expects all listed companies to learn the lessons from this case and to ensure they have the right controls and training in place.