Duties and Liabilities of Sponsor

Question 1

Sponsor duties

Answer 1

• PRR 5.3.2R: For new applicants, sponsor obligation to FCA for premium listing
• LR 8 sets out in some detail the role and duties of a sponsor.
• LR 8.3.1R: a sponsor must provide assurance to the FCA that the responsibilities of the applicant under the LRs have been met and guide the applicant in understanding and meeting its responsibilities under the LRs, under the transparency rules in the DTRs, and under the disclosure obligations in MAR.
  • In this context, the sponsor is subject to a duty to provide to the FCA any explanation or confirmation it reasonably requires for the purposes of ensuring that the LRs are being complied with by an applicant or a listed company (LR 8.3.1R(1A)).
  • The sponsor must also take all reasonable steps to ensure that any communication or information it provides to the FCA in carrying out the sponsor service is, to the best of its knowledge and belief, accurate and complete in all material respects and ensure that it provides the FCA with any information of which it becomes aware which materially affects the accuracy or completeness of previously provided information (LR 8.3.1AR).
  • A sponsor is the main point of contact with the FCA and the FCA expects to discuss all issues relating to a transaction and any draft or final documentation directly with the sponsor (LR 8.3.2G).
  • The sponsor remains responsible for complying with LR 8.3 even where the sponsor relies on the applicant or a third party when providing an assurance or confirmation to the FCA (LR 8.3.2AG).
• The sponsor has specific obligations to the FCA in relation to the application for admission of equity shares to a premium listing by a new applicant (i.e. an issuer which does not already have equity shares admitted, such as Aqua).
• These obligations are set out in:
  • LR 8.4.2R: for a new applicant i.e. an issuer which does not already have equity shares admitted
  For example, the sponsor must be in a position to confirm that it “…has come to a reasonable opinion, after having made due and careful enquiry that:
  1) the applicant has satisfied all requirements of the listing rules relevant to an application for admission to listing;
  2) the applicant has satisfied all applicable requirements set out in the prospectus rules….; and……
  5) the directors of the applicant have a reasonable basis on which to make the working capital statement…”
  • LR 8.4.8R for an applicant which already has equity shares admitted
• The sponsor is required to submit to the FCA a standard document called the “Sponsor’s Declaration on an Application for Listing” on the day that the FCA is to consider the approval of the prospectus (see LR 8.4.3R(1)). This contains the confirmations required under LR 8.4.2R referred to above.
• In order to make this declaration to the FCA, the sponsor will want to have received a number of pieces of comfort (so-called “comfort letters” and accountants’ reports), both from the issuer itself, the reporting accountants, and even from the solicitors to the issuer and the sponsor (although the comfort letters from the reporting accountants and the solicitors will give much more limited confirmations than the issuer would give).
• There will also be preliminary comfort letters provided to the sponsor at the time of publication of the standalone registration document.

Question 2

Sponsor liabilities

Answer 2

S.88A FSMA - FCA right to punish breach of LRs
- S. 88A FSMA, the FCA may take enforcement action against a sponsor which breaches certain LRs imposing requirements in relation to the provision of sponsor services or contravenes any of the restrictions attaching to its FCA approval as a sponsor.
- In such circumstances, the FCA is entitled, pursuant to s.88A(2), to take the following action:
• impose a financial penalty on the sponsor;
• suspend the sponsor’s approval to act as a sponsor for a period of up to 12 months;
• impose limitations or restrictions on the sponsor’s approval to act as a sponsor for a period of up to 12 months; and/or
• publish a statement of censure in relation to the sponsor.
- Where the FCA proposes to take action against a sponsor under s.88A FSMA, s.88B FSMA requires it to give the sponsor a warning notice setting out the details of the proposed action.
- If the FCA decides to go ahead with the action, it must give the sponsor a decision notice (s. 88B(5) FSMA).

S.88E FSMA – broader FCA power to punish sponsors

• In addition to its specific powers under s.88A FSMA, the FCA has a broader power under s.88E FSMA to suspend a sponsor’s approval as sponsor or impose restrictions on such approval if it considers this desirable in the context of the FCA’s operational objectives (which include protecting and enhancing the integrity of the UK financial system).
• Where the FCA proposes to take action against a sponsor under s.88E FSMA, it must give the sponsor written notice of its intention, including the reasons for its action and the time period during which the sponsor may make representations to the FCA.
• When any final decision has been made in relation to action under s.88E FSMA, the FCA must give written notice of this fact to the sponsor.

S.88 FSMA - cancellation of approval as sponsor

• The FCA can also effectively stop a sponsor practising by cancelling its approval as a sponsor under s.88 FSMA.
• Once again, the FCA is obliged to give a warning notice, take account of any representations made by the sponsor and then give a final notice of its decision.