Release Date: 12th December 2022
To access the original FCA document, click here.
Summary
Metro Bank PLC has been fined £10,002,300 by the FCA for publishing inaccurate information regarding its Risk Weighted Assets (RWA) in its Q3 trading update on 24 October 2018. This breach of Listing Rule 1.3.3R highlights significant failures in Metro Bank’s duty to ensure market disclosures are not false, misleading, or deceptive.
Key Reasons for the Fine:
- Inaccurate RWA Reporting: Metro Bank inaccurately reported its RWA as £7,398 million, failing to correct a known error in the risk weighting of certain commercial loan portfolios.
- Failure to Disclose Critical Information: Metro Bank did not disclose the error in the risk weighting or the ongoing review to correct this error, which significantly understated the bank’s actual RWA.
- Lack of Reasonable Care: Despite knowing the correct risk weighting should be 100% for certain loans, the bank included the incorrect 50% weighting in its published RWA figure without qualification or correction.
- Inadequate Governance: Key senior executives, including the Chief Financial Officer and Chief Executive Officer, failed to ensure that the Audit Committee and the Board considered the accuracy and completeness of the October Announcement.
Consequences and Impact:
- Market Misleading: The incorrect RWA figure misled investors, resulting in significant market impact when corrected in January 2019. Metro Bank’s share price dropped by 39% following the correction, the largest single-day drop experienced by a UK bank since 2009.
- Professional Misconduct: Senior executives were aware of the error but did not seek adequate legal or professional advice on the need to disclose the ongoing review or the error, nor did they ensure proper internal governance over the disclosure.
Key Takeaways for Other Firms:
- Ensure Accurate Reporting: Firms must ensure all published financial information is accurate, and any known errors or ongoing reviews must be disclosed to avoid misleading investors.
- Enhanced Due Diligence: Regularly review and validate key financial metrics, especially those that significantly impact market perception and investor decisions.
- Strong Governance and Oversight: Establish robust governance processes to review and validate disclosures, involving Audit Committees and Boards in these critical decisions.
- Effective Communication: Maintain clear and transparent communication with stakeholders about potential issues and ongoing reviews to uphold market integrity.
Conclusion:
The FCA’s fine on Metro Bank underscores the critical importance of accurate market disclosures and robust internal governance. By addressing these deficiencies and committing to stringent oversight and validation processes, firms can avoid similar regulatory penalties and maintain investor trust and market integrity.