The Financial Conduct Authority (FCA) has fined Cenkos Securities plc (Cenkos) £530,500 for failures in its sponsor services business. Cenkos failed to have appropriate systems and controls in place across its sponsor services business, and, on a particular transaction, failed to act in its sponsor role with the level of diligence and professional care that the FCA expects.
In early 2014, Cenkos represented to the FCA that one of its clients was eligible for a Premium Listing when it had not carried out the requisite due diligence to ensure that this was correct. Ultimately the transaction was abandoned, as Cenkos was unable to satisfy the FCA that its client was eligible for a Premium Listing at that time.
Mark Steward, Director of Enforcement and Market Oversight at the FCA said:
Sponsor firms have key gatekeeper functions to ensure a candidate for listing is eligible and so they must carry out appropriate due diligence to the requisite standards. The FCA will hold sponsor firms strictly accountable whenever these standards are not met given failure places both market integrity and the well-being of the investing public at risk.”
Cenkos is an AIM-quoted company that provides various securities-related services to UK companies. It is an authorised firm which is an approved sponsor under the FCA’s Sponsor Regime and a Nominated Adviser for the purposes of AIM.
Cenkos failed to put in place adequate systems and controls to ensure appropriate oversight of Sponsor Services, and to ensure that all their Deal Teams were adequately supervised when carrying out Sponsor Services mandates. Certain deal teams were left largely unchallenged and unsupervised which increased the risk that serious issues would occur, undetected, on client mandates.
Further, it failed also to properly understand and address the serious concerns raised by the FCA during the Transaction regarding the client’s ability to demonstrate its eligibility, and it failed to consider the potential impact of a negative research piece published by Gotham City Research LLC on 22 April 2014 regarding the client on the Transaction, the timetable, and any risk of investor detriment.
Cenkos agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% discount. Were it not for this discount, the FCA would have imposed a financial penalty of £757,800 on Cenkos.