New Technical Notes on Responsibilities of a Sponsor: Specialist Due Diligence
Pictured: Nikhil Rathi, Chief Executive at the FCA
Context
Following on from a consultation on 11 July 2024. The Knowledge Base is the FCA’s repository of non-handbook commentary that has the status of formal FCA guidance. It is a series of short procedural and technical notes ordered by topic. The notes relate to aspects, among others, of the UK Listing Rules, Prospectus Regulation Rules and Disclosure Guidance and Transparency Rules. The information is designed to help issuers, sponsors and practitioners interpret these rules.
The focus of the FCA’s review will depend on the circumstances. Generally, they are seeking to understand if the sponsor appears to have complied fully with the rules for sponsors. Most typically, they are looking for evidence to provide confidence in our ability to continue to rely on the sponsor. In some cases, the reason for doing this may be because we already have concerns in relation to the sponsor’s performance on a transaction.
FCA's Approach to Sponsor Reviews
Sponsor reviews are a key tool through which the FCA can test whether sponsors are meeting our requirements. They provide an opportunity to look closely at the approach a sponsor has taken through analysing the records the sponsor has kept and discussing the sponsor’s approach with them. This allows the FCA to build experience of sponsor practices and to share these where appropriate. Typically, the FCA provide feedback to a sponsor. In some cases, the FCA requires measures to be put in place to prevent the likelihood of future breaches of its rules. In most cases the feedback will help a sponsor to understand if its systems and controls are effective and if the judgements of its staff
Primary Market Technical Note December 2024 / Primary Market / TN / 723.1 Page 3 of 10 are in line with the expectations of the FCA. The sponsor can then consider if any changes are needed in its sponsor operations. Very occasionally, the FCA identifies potential breaches of its rules, and may refer these cases to the Enforcement team for investigation.
Content
The FCA proactively chooses to review a sponsor because it is subject to high risk e.g. it is highly active on complex transactions, warranting particular oversight, because a review has not been conducted on them for some time and wishes to refresh the FCA’s understanding of how the firm approaches its work as a sponsor. Reviews will mean considering whether the firm has:
taken care and considered regulatory risks when taking the client/transaction on.
properly identified and managed conflicts of interest.
been open and cooperative with the FCA.
applied due care and skill when forming its opinions to support submissions/representations made to the FCA and assurances provided to the FCA.
kept appropriate records.
Rules and guidance
UKLR24
UKLR 24.4.25R
UKLR 24.5.1G
UKLR 24.5.2R
UKLR 24.5.3G
UKLR 24.5.6G
UKLR 24.5.7G.
Businesses Affected
This updated guidance primarily affects sponsors in the market.
Next steps for businesses
Sponsors should contact their relationship manager in the Primary Market Specialist Supervision Team if they have questions to address.
Sponsors should review this feedback letter carefully.
Where a sponsor considers our feedback to be unfair or factually inaccurate, they are expected to inform the FCA promptly, providing adequate supporting evidence. The sponsors should reply to the FCA’s feedback letter to aid the FCA in understanding how the sponsor is responding to the matters raised.
