On 16 June 2025, the Upper Tribunal upheld the decision of the Financial Conduct Authority (FCA) to fine Craig Donaldson and David Arden for being knowingly concerned in a breach of the Listing Rules by a bank listed on the London Stock Exchange. The breach related to the reporting of inaccurate information about the bank's prudential position in October 2018. Mr Donaldson and Mr Arden were the former CEO and former CFO respectively of the bank and were the only executive directors of the listed entity.
The relevant rule reads: 'An issuer must take reasonable care to ensure that any information it notifies to a RIS or makes available through the FCA is not misleading, false or deceptive and does not omit anything likely to affect the import of the information.'
Section 91(2) of the Financial Services and Markets Act 2000 (FSMA) provides that where an issuer has breached the Listing Rules and an individual, at the relevant time a director, was knowingly concerned in the breach, the FCA may fine them such amount as it considers appropriate. To be knowingly concerned, a director must know the facts and matters which give rise to the breach (and be concerned in those matters) but need not know that a breach actually occurred.
We set out background to the case and the decision with our key insights for listed firms to consider.
Background
On 24 October 2018, the bank published its Q3 trading update. This update misreported information about the bank's capital ratios and the value of its risk weighted assets (RWAs). In particular, the bank had miscalculated the risk weights for portfolios of its commercial loans secured on immovable property (so-called CLIP loans), which were weighted at 50% instead of 100% as they should have been. These figures were corrected in an announcement in January 2019 which stated that the value of RWAs had increased to approximately £8.9 billion (up from the reported £7.3 billion in October). The bank's share price fell by 39%.
In December 2021, the Prudential Regulation Authority (PRA) fined the bank £5,376,000 for breaches of Fundamental Rules 2 and 6,1 and in December 2022, the FCA published a Final Notice imposing a fine of £10,002,300 for a breach of Listing Rule 1.3.3R (now UK Listing Rule 1.3.3), and its Decision Notices which proposed to fine Mr Donaldson and Mr Arden for being knowingly concerned in that breach. The FCA argued that both directors downplayed this issue in the information they provided to the Audit Committee and the Board and misled them when considering the Q3 trading update, while knowing the RWA issue was being reviewed by external consultants and the corrective adjustment could be as high as £600 million.
The decision
The Upper Tribunal considered in turn (1) whether the bank breached the Listing Rules; (2) whether Mr Donaldson and Mr Arden were knowingly concerned in that breach; and (3) the appropriate financial penalty.
How should listed companies approach information that might be misleading?
The Upper Tribunal agreed with the applicants' submission that the relevant rule is only contravened where information is materially misleading, false or deceptive or if material information was omitted. Following an audit of its regulatory returns by the PRA, the bank had brought in external consultants to assist with the classification of its RWAs and, at the time of the Q3 trading update, the review was incomplete. The matter was also the subject of ongoing conversations between the bank and the PRA, and the figures relating to the RWAs in the bank's regulatory returns to the PRA (which were also disclosed in the Q3 trading update) were known to be wrong by both the PRA and the bank. The applicants sought to make out that, as the review was incomplete at this point in time, the real size of the RWA adjustment required was unknown. Therefore, it could not be said that the Q3 trading update was materially misleading, false or deceptive as it was not known at the time that the size of adjustment was or would be material.
Unsurprisingly, the Upper Tribunal rejected this submission. Where an issuer knows there is an error in information which has been disclosed to the market, as it did in this case, and knows that the error might be material, it cannot simply assume that it is immaterial. That would omit something which is 'likely to affect the import of the information' which is being disclosed and would therefore not meet the requirements of Listing Rule 1.3.3R.
They also argued that the figures used in the PRA returns were the same as those in the disclosures to the market, and that it was prevented by its 'obligations of confidentiality' to the PRA from disclosing the RWA issue to the market at the time of the update. The Tribunal also rejected this submission on the grounds that the matter which was confidential was a separate one to the issue with the RWA, and in any event the bank had not respected any confidentiality of its discussions with the PRA, and had made announcements about matters which were confidential.
Was it reasonable for the directors to rely on legal advice?
The applicants submitted that external counsel had provided advice to the effect that the RWA issue need not be reported to the market as it was not specific or material and was part of confidential conversations with the PRA. The Upper Tribunal found the meaning of counsel's advice to be that the RWA issue did not amount an immediate market disclosure under the Market Abuse Regulation (MAR) only. The publishing of false and misleading information in the Q3 trading update was a separate and distinct issue from withholding inside information from public disclosure entirely, and this legal advice could not be read across from one regime to another.
The Upper Tribunal observed that even had the applicants sought advice on the correct regime in relation to the Q3 trading update, Mr Arden had failed to brief legal counsel properly and could not reasonably have relied on that advice. No copy of the draft Q3 trading update was provided to counsel, and they were not made aware that the RWA figures were to be reported in that update, let alone that those figures were known to be incorrect.
Can legal advice serve as a defence to being 'knowingly concerned'?
Further, the Upper Tribunal considered whether the applicants could be relieved of being knowingly concerned in the breach on the basis of the legal advice they received and believed to have observed. The test to be knowingly concerned, as formulated in the judgement, is:
- a person must have been actually involved in the contravention; merely passive knowledge is not sufficient; and
- must have had knowledge of the facts on which the contravention depends; and
- it is immaterial whether he had knowledge of the law, unless:
- he had received and was relying on independent legal advice that the activity concerned was not in contravention of the law; and
- that advice was based on a correct and complete factual matrix.
As noted, the advice sought and relied upon by the applicants before publishing the Q3 trading update concerned disclosures under MAR, not compliance with the Listing Rules. Although they had received independent legal advice, this was not on the 'activity concerned' (i.e. reporting incorrect RWA values) and the 'factual matrix' provided to counsel contained significant omissions.
As well as being material to whether the applicants were knowingly concerned in the bank's breach, had the applicants sought and relied on the right legal advice, this may also have served as a mitigant when the Upper Tribunal assessed seriousness for the purposes of the penalty.
Why did the Upper Tribunal reduce the financial penalties?
The Upper Tribunal reduced the penalty charged on Mr Donaldson from £223,100 to £167,325 and the penalty charged on Mr Arden from £134,600 to £100,950 based on mitigating factors that the FCA had not taken into account previously.
In assessing the degree of co-operation during the investigation of the breach (factor (b) of DEPP 6.5B.3), the FCA submitted that the applicants were legally obliged to attend interviews for the investigation therefore their attendance was not relevant to mitigation. The Upper Tribunal disagreed with this, noting that while an individual can be compelled to attend an interview, they might not always be forthcoming and honest. It therefore considered the applicants' engagement with their interviews as a mitigant for the penalty.
Regarding any remediation undertaken by the applicants (factor (d) of DEPP 6.5B.3), the FCA sought to argue that steps taken by the bank to correct the breach and improve its systems and controls should not count to mitigation. Its view was that the bank's disclosure of the correct RWA figures in January 2019 was 'to comply with its obligations under Listing Principle 1 and Article 17 of MAR rather than in order to remedy directly any harm arising from its breach of LR 1.3.3R'. The Upper Tribunal considered that the FCA's understanding of DEPP was unreasonably narrow and that any remedial steps taken after the relevant breach was identified should count to mitigation, not just those remedying direct harm from the breach.
Conclusion
The Upper Tribunal's decision demonstrates the significant personal liability that directors of listed companies assume when reporting to the market. Where there has been a breach of the Listing Rules and the FCA alleges an individual was knowingly concerned in that breach, the courts will be thorough in examining the minutiae of the governance procedures followed and the content and context of any legal advice that was acted upon. It appears that it is a difficult bar to satisfy for an individual to relieve themselves of liability on the basis that they followed legal advice.
Listed company directors are reminded to be transparent and honest in dealing with their legal advisors, and to ensure that the scope of any advice is clear. To the extent material information is omitted or withheld from instructions, this will make it difficult for counsel to properly advise on any risks and may in turn limit the ability of a director or their company to rely on that advice subsequently.
It is notable that despite the fact that both directors were also Senior Managers, the FCA took action against Mr Arden and Mr Donaldson because of their being knowingly concerned in the bank's breach of the Listing Rules, and not on another basis open to the FCA (for example, breach of the Conduct Rules). In particular, it was the FCA's case that they had acted negligently, rather than without integrity or recklessly.
Footnote
1. Fundamental Rules: 2) A firm must conduct its business with due skill, care and diligence, and 6) a firm must organise and control its affairs responsibly and effectively.
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