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    UK FSA Fines Prudential £30m, Censures CEO for Failure to Disclose

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    Earlier today, the UK Financial Services Authority fined two member companies of the Prudential Group a total of £30 million for failing to disclose its 2010 plan to bid for AIA, the Asian life and pensions arm of American International Group.  Prudential plc was fined £14 million, and The Prudential Assurance Company Limited was fined £16 million, for failing to deal with the FSA in an open and cooperative manner.  The FSA separately censured Prudential Group’s CEO, Tidjane Thiam, finding that his “serious error of judgment” caused him to bear responsibility for the companies’ failure to deal forthrightly with the regulator.  The FSA’s final notices are available here, here, and here.

    The FSA’s action stemmed from a conclusion that Prudential had failed to deal with the FSA in an “open and cooperative manner” because it did not inform the FSA of Prudential’s planned bid until after details had been leaked to the media on 27 February 2010.  As recently as 12 February 2010, Prudential executives had not informed the FSA of the possible deal, even when the regulator asked “detailed questions” about Prudential’s growth strategy in the Asian market, and its plans for raising equity and debt capital.  The proposed transaction, according to the FSA, would have transformed Prudential Group’s financial position, strategy, and risk profile, and risked a delay in publishing information on a £14.5 billion rights issue, which would have been the largest-ever in the UK.

    The FSA concluded that Prudential wrongly allowed its judgment to be overly influenced by its concern about the risk of leaks, which caused Prudential to fail to give due weight to the importance of complying with its regulatory obligations.  The FSA concluded, also, that Mr. Thiam played a significant role in the decision not to contact the FSA about the proposed acquisition, which made him “knowingly concerned” in the breach.  In its censure, the FSA made no finding that Mr. Thiam lacked fitness or propriety.  The FSA also concluded that, while serious, Prudential’s breaches were neither reckless nor intentional.

    Today’s news is significant for several reasons.  First, the two fines imposed are the 8th and 9th largest ever issued by the FSA, and they are the largest-ever fines levied against insurance companies.  Second, this is the first time that the FSA has formally and publicly censured such a high-profile CEO.  Third, this is more evidence, if it were needed, about the FSA’s revised “credible deterrence” enforcement strategy, which is much more likely to target high-profile firms and high-profile individuals, and to impose higher fines, than has previously been the case.  Today’s action by the FSA should serve as a reminder to firms, board members, and executives alike about the importance of communication with the regulator.

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