Andrew Procter, Director of Enforcement at the FSA said:
"This is the first time that we have fined someone for market abuse on OFEX, reminding investors that the FSA can and will take action against market abuse on any of the UK's prescribed markets."The FSA has fined three individuals this year using its Market Abuse powers so the message for senior management is clear: positions of trust should not be abused for personal gain."
Mr Davies had helped to prepare the interim results, which showed that BMG had returned to generating profits. He also knew that the exceptional items, which had an adverse effect on BMG's previous year's profits (2002/03), would not be recurring. Mr Davies had been given a draft copy of the Chairman's statement, an important part of the announcement to OFEX, in early December 2003. Mr Davies purchased the shares on 5 January 2004, the day before the announcement of the interim results. He sold the shares on 7 January 2004 after BMG's share price rose approximately 29%, to make a profit of £420.
The FSA originally considered that a penalty of £4,000 was appropriate for Mr Davies' actions, but given his full and frank admission of his behaviour at the earliest possible opportunity, his co-operation with the FSA investigation and his financial resources and personal circumstances, the level of the penalty was reduced to £1000.
Background
- The full text of the Final Notice, dated 28 July 2004, is available here. This includes the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account by the RDC when setting the level of the fine.
- Financial penalties are not treated as income by the FSA. They are applied for the benefit of authorised persons (or the issuers of securities admitted to the official list) as appropriate, and so given back to the industry in subsequent years.
- BMG, formed in 1991, operates as a holding company which provides a range of management services to its six wholly owned subsidiaries. These subsidiaries provide independent financial planning advice and the supply and packaging of medical and general insurance services.
- Two other individuals have been fined by the FSA for market abuse. Robert Middlemiss was fined £15,000 on 10 February 2004 and Peter Bracken was fined £15,000 on 7 July 2004.
- The market abuse regime was first introduced by the Financial Services and Markets Act and applies to conduct on or after 1 December 2001. Under the Act the FSA has power to impose financial penalties for market abuse, which is defined as one of three types of behaviour:
- Misuse of information
- Misleading statements and impressions and
- Market distortion
The proceedings in this case relate to the first category of behaviour – misuse of information – which involves making improper use of information that other investors would regard as significant in advance of that information being announced to the market as a whole. The provision protects investment markets, such as the equity markets, that rely on the timely provision of information to all market participants on an equal basis.
- The RDC is established to ensure that FSA decisions regarding enforcement matters (among others) are taken by a body that is separate from the investigation and prosecution functions of the FSA. While the RDC is accountable to the FSA Board for its policies and procedures, this does not affect its independence in relation to its individual decisions.
- 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.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
