Background
- The FSA is the principal regulator of the UK 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; the 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.
Dear Sirs
FSA Investigation: British Energy plc ("BE" and/or the "Company")
Background
As you are aware, on 5 September 2002, BE announced that it had initiated discussions with Her Majesty's Government ("HMG") with a view to seeking immediate financial support and to enable a longer term restructuring of the Company. The announcement stated that the discussions with HMG followed the break down of commercial negotiations with British Nuclear Fuels Limited ("BNFL"), a company wholly owned by HMG. Following this announcement, BE's listing was suspended by the UK Listing Authority pending clarification of its financial position. BE's listing was subsequently restored on 9 September following a further announcement clarifying its financial position.
The Financial Services Authority ("FSA") had concerns regarding the timeliness of the 5 September announcement and the accuracy of BE's previous announcements and statements regarding its financial condition and discussions with BNFL. In particular, the FSA had concerns over the statements made by BE's Chairman and Finance Director on 14 August 2002 that the Company did not face a "financial crisis" or an "immediate credit crisis" following the unplanned outage at its Torness power station on 12 August 2002.
As a result of these concerns, investigators were appointed by the FSA (acting in its capacity as UK competent authority for listing) on 28 October 2002 to establish whether, during the period 7 May 2002 up to and including 5 September 2002 ("the Relevant Period"), BE had complied with its obligations under the Listing Rules. The investigators were also appointed to establish whether market abuse (s118 FSMA) or an offence of making false or misleading statements (s397 FSMA) may have been committed by BE and/or its directors during the Relevant Period.
FSA's conclusions
The FSA has gathered extensive evidence from relevant persons, including BE and its advisors, and also from BNFL and its advisors. Following its investigation the FSA has determined that there is no evidence that, during the Relevant Period, the Company breached its obligations under the Listing Rules. The FSA has also found no evidence of any breach by the Company or its directors of s118 FSMA or offence under s397 FSMA during the Relevant Period.
The evidence submitted to the FSA suggests that BE was aware of its disclosure obligations and took appropriate steps to ensure compliance with such obligations during the Relevant Period. The purpose of this letter is to inform the Company that, based on the information and evidence currently available, the FSA considers that no further action should be taken in relation to this matter. BE's statements on 14 August and 5 September 2002
The FSA has examined BE's financial position as at 14 August 2002. As a result of BE's prior disclosures, the market was aware that the Company's UK business was heavily loss-making and that it required significant changes to its commercial environment in order for the UK business to be restored to long-term viability.
The material provided to us shows that BE had undertaken extensive work to determine the effect of the Torness outage on its financial condition, both in its then current financial year and for the years going forward to 2005. The FSA is satisfied that the statements made by BE on 14 August 2002 were supported by the results of the work it had undertaken.
As you know, following the outage at Torness, BNFL and BE entered into detailed negotiations which focused upon renegotiating the terms of its fuel contracts. The intention was for BNFL to produce a term sheet during the first week of September. In the event, the term sheet delivered to BE at midnight on 3/4 September 2002 fell far short of what BE had expected. BE considered the implications of BNFL's proposals and the longer term prospects of the Company at its Board meeting on 5 September 2002 and concluded that it should not draw down on its existing undrawn loan facilities. BE decided at the Board meeting on 5 September 2002 to seek assistance from HMG and the announcement made by BE at 18:37 on 5 September resulted from decisions made at this Board meeting. The FSA has found no evidence to suggest that BE's financial condition or the Company's expectations as to its performance changed materially in the period from 14 August until 5 September.
I would like to express our appreciation for the co-operation shown by the Company and your solicitors during the course of this investigation.
Yours faithfully
Enforcement Division
Financial Services Authority
