UK's Financial Services Authority Announces Serious Breach Of The Listing Rules By SFI Group plc

The FSA today released a a href="http://www.fsa.gov.uk/pubs/final/sfi_11dec03.pdf">public statementcensuring SFI Group plc ("SFI") for breaching the Listing Rules. This is the first action taken by the FSA for a contravention of the Listing Rules under its statutory powers assumed in December 2001.

The FSA has found that SFI breached the Listing Rules by failing to take reasonable care to ensure that the Preliminary Results Announcement issued on the 30 July 2002 was not false or misleading.

Andrew Procter, FSA Director of Enforcement said: "Listed companies' obligation to ensure the accuracy of published financial information is a fundamental protection for shareholders and is vital for the smooth operation of efficient, orderly and competitive markets.

"SFI's failure to take reasonable care to ensure that its systems and controls were capable of providing it with information for the market that was accurate, complete and not misleading constitutes a serious breach of the Listing Rules.

"The company's Preliminary Results Announcement presented an overstated and overoptimistic view of SFI's financial results and its future prospects, not only as at 30 July 2002, but also in relation to the results for the two financial years prior to that date."

The FSA has concluded that SFI breached paragraph 9.3A of the Listing Rules, which requires Announcements to the market to be accurate, complete and not misleading, false or deceptive, in the following ways:

1. SFI's accounting systems and controls failed to, and had for some time failed to, reliably determine SFI's current and historical financial position as a whole.
2. SFI's accounting systems and controls were not, and had for some time not been, robust enough to support internal forecasts and projections that proved misleading and false.
3. These failures in SFI's accounting systems and controls as set out above, had persisted for at least two years prior to the Preliminary Results Announcement and it was only in November 2002 that SFI eventually identified the accounting discrepancies, which caused the Preliminary Results Announcement to be misleading and false.

While there is no evidence to suggest these breaches were deliberate, there was a serious failure to take the reasonable care required of listed companies. The FSA, having considered all the circumstances, including SFI's financial position, has decided not to impose a financial penalty and has decided to issue a public statement of censure. The FSA acknowledges that SFI and their advisors have taken a co-operative approach to this investigation.

Background

1. The full text of the Decision from the Regulatory Decisions Committee of the FSA is available here.
2. On 12 November 2002, SFI announced the suspension of its shares following the discovery of accounting discrepancies.
3. Paragraph 9.3A of the Listing Rules states that:

   "A company must take all reasonable care to ensure that any statement, forecast or any other information it notifies to a Regulatory Information Service or makes available through the UK Listing Authority is not misleading, false or deceptive and does not omit anything likely to affect the import of such statement, forecast or other information.

4. The FSA took on new powers under the Financial Services and Markets Act 2000, on 1 December 2001. The disciplinary sanctions available to the FSA for breaches of the Listing Rules that take place on or after 1 December 2001 include a fine or a public statement.
5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.
6. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.