The Financial Services Authority (FSA) has fined companies in the Prudential Group (Prudential) a total of $45 million for breaching FSA Principles and UKLA Listing Principles.
The fines relate to Prudential’s failure to inform the FSA at the appropriate time that it was seeking to acquire AIA, the Asian subsidiary of AIG, in early 2010.
Prudential PLC was fined $21 million.
Prudential Assurance Company Ltd. was fined $24 million.
The FSA has also censured Tidjane Thiam, Prudential’s Group Chief Executive.
“The FSA expects to have an open and frank relationship with the firms it supervises and with listed companies,” said FSA enforcement Tracey McDermott. “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 FSA charged that 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 February 27, 2010.
The FSA said that 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 February 12, 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 $22 billion — 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.
The FSA said that given those 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 scrutinizing 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,” the FSA said in a statement.
“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.”
The FSA said that 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, the FSA said.
In censuring him, the FSA made no finding of lack of fitness and propriety in relation to Tidjane Thiam.