Market Abuse Regulation (MAR) – FCA final notice on breach of PDMR dealing notifications

Market Abuse Regulation (MAR) – FCA final notice on breach of PDMR dealing notifications. Introduction

On 20 December 2019 the Financial Conduct Authority (FCA) published a final notice and imposed a fine of £45,000 on an employee of a listed company in respect of failures to notify the issuer and the FCA of dealings in shares as required under article 19(1) of MAR.

This is the first enforcement action taken by the FCA for a breach of article 19(1) of MAR. It is also noteworthy for the following reasons:

• The individual was not a main board director of the issuer.
• The penalty not only took account of the seriousness of the breach, but also the salary of the individual over the period of the breaches, on the basis that the breaches of MAR were considered by the FCA to be related to the individual's employment.

Background

Article 19(1) of MAR requires persons discharging managerial responsibilities (PDMRs) within an issuer (and persons closely associated with them (PCAs)) to notify the issuer and the FCA of transactions conducted on their own account in the issuer's shares or debt instruments, or derivatives relating to such shares or debt instruments. Notification is required to be made within three business days of a relevant transaction, if the total amount of transactions per calendar year has reached €5,000. 

MAR defines PDMRs as a natural or legal person in an issuer who is either:

• A member of the administrative, management or supervisory body or the issuer.
• A senior executive who is not a member of the administrative, management or supervisory of the issuer, but who has regular access to inside information relating directly or indirectly to that issuer and the power to make managerial decisions affecting the future developments and business prospects of the issuer.

Facts and the Findings of the FCA

Braemar Shipping Services plc (Braemar) is listed on the Main Market of the London Stock Exchange.
Kevin Gorman was the Managing Director of Braemar's Logistics Division. He was not a main board director of Braemar. However, he was a senior employee and one of only five members of its Executive Committee. As a consequence of this, Mr Gorman received confidential management information and had the power to make managerial decisions affecting the future development and business prospects of Braemar. 

Accordingly, the FCA concluded that Mr Gorman was a PDMR for the purposes of MAR. Indeed, Braemar had written to Mr Gorman on 22 July 2016 to inform him that it considered he was a PDMR as he "[has], or [is] likely to have, access to inside information about the Company".

Mr Gorman held 22,221 shares in Braemar. He sold those shares on three separate occasions as follows:

• on 24 August 2016, 2,221 shares were sold at £4.13 per share for a total of £9,172.73;
• on 10 November 2016, 4,644 shares were sold at £3. 2788 per share for a total of £15,226.75; and
• on 18 January 2017, 15,356 shares were sold at £3.05 per share for a total of £46,835.80.

Mr Gorman did not notify Braemar of the trades within three business days as required by article 19(1) of MAR, nor did he seek prior authorisation from Braemar to trade as required by the company's dealing code. Accordingly, Braemar was not in a position to announce the necessary PDMR notifications to the market as required by article 19(3) of MAR. 

The FCA noted that on 22 July 2016 (i.e. shortly after the implementation of MAR) Braemar sent all PDMRs, including Mr Gorman, a briefing pack explaining their responsibilities arising from the changes brought about by MAR. However, the FCA found that the PDMRs were not provided with any training to explain how MAR impacted them individually. Following repeated requests by Braemar, on 26 November 2016 (i.e. after the second of the three trades) Mr Gorman signed and returned the form acknowledging that he had received and read the information in the briefing pack and understood his legal and regulatory obligations as a PDMR of Braemar. 

Despite returning the signed acknowledgement form, Mr Gorman claimed to the FCA that he did not read or check the documents at the time and was not aware of his PDMR obligations. The FCA stated that it did not consider a claim of ignorance of the obligations outlined in MAR to be a defence for a breach. Further, the FCA concluded that Mr Gorman must have been aware that by signing a document relating to his PDMR obligations without reading or checking, he was knowingly taking a risk that by action or inaction he could breach his PDMR obligations. 

Failings and Sanction

The FCA determined that Mr Gorman breached article 19(1) of MAR on three occasions between 31 August 2016 and 24 January 2017. Mr Gorman failed to notify Braemar and the FCA of all three trades promptly and no later than within three business days. As a result, Braemar was not in a position to announce the necessary PDMR notifications to the market in accordance with article 19(3) of MAR.  

The FCA reiterated that notification of managers' transactions under MAR provided valuable information to market participants, as well as providing a means for the FCA to supervise markets. 

The penalty imposed by the FCA on Mr Gorman was £45,000. It would have been £64,300 but for Mr Gorman agreeing to resolve the matter, thereby qualifying for a 30% discount under the FCA's executive settlement procedures. 

In calculating the penalty, the FCA did not identify any personal financial benefit to Mr Gorman derived directly for the breach. Therefore the penalty did not need to have an element of disgorgement. 

The FCA noted that when the FCA determines a figure which reflects the seriousness of a breach, that figure is based on a percentage of the individual's relevant income. Mr Gorman's breaches of article 19(1) of MAR were held to relate to his employment at Braemar during the relevant period. His income during the period over which the breaches occurred was £643,684. The FCA therefore determined a figure for the penalty based on a percentage of this income, being 10% or £64,300. 

In assessing the seriousness of the breach, the FCA took account of the following factors:

• Mr Gorman, by signing and returning the form acknowledging his MAR obligations (on his own admission without having read or checked the briefing pack) was aware that there was a risk that he could breach his PDMR obligation; 
• there was no evidence that Mr Gorman's breaches had a material adverse impact on the market or significantly impacted Braemar's share price; 
• although Mr Gorman received a pack of documents explaining his PDMR responsibilities arising from the changes brought about by MAR, he was not provided with any individual training;
• although Mr Gorman's conduct occurred over a relatively short period of time, it did not consist of an isolated breach; and
• Mr Gorman's failure to notify Braemar meant that Braemar was not in a position to announce the necessary PDMR notifications to the market in accordance with article 19(3) of MAR.