The Financial Conduct Authority has fined Metro Bank £10mn for publishing incorrect information to investors and fined two former executive directors a further £358,000.
The bank’s former chief executive Craig Donaldson has been fined £223,100, while former chief financial officer David Arden has been fined a lesser £134,600.
The regulator said the two were “knowingly concerned” in Metro Bank’s breach of the UK’s listing rules, specifically that misleading information should not be published.
Metro Bank was aware at the time that this figure was wrong and failed to qualify it.The FCADonaldson and Arden have both referred the FCA’s decision notices published today (December 12) to the Upper Tribunal where they will each present their case.
The misleading information was published in the bank’s third quarter trading update back in October 2018.
It stated that Metro Bank’s risk weighted assets, which are what banks base their regulatory capital requirements on, totalled £7.4bn at the end of September 2018.
Risk weighting of 50 per cent had been applied, but by September 11 of that year - 43 days before the quarterly update was published on the stock exchange - the FCA said two external consultants had independently confirmed that the correct risk weighting was in fact double what had been applied (100 per cent).
On August 24, the regulator said Donaldson and Arden were informed that the RWA figure would need to increase by £640mn in order to be correct.
The regulator said the two failed to consult both the bank’s audit committee and the board about the inclusion of an inaccurate figure in the quarterly results.
On an investor call on November 2, Arden was asked about the risk weight on the commercial real estate portfolio.
He was asked why the weighting was so low when compared to standardised risk weights at the time, and whether he could clear up the “disparity”.
The chief financial officer replied: “I have not got the details to hand, so I will probably get back to you. But just rest assured, we continuously look at all the risk weightings we have, and we are constantly reviewing that. I am afraid I have not got the math to hand”.
When the correct RWA figure was announced in January 2019, Metro Bank’s share price fell by nearly 40 per cent.
The January trading update include an expected increase in RWA to “approximately £8.9bn” and a softening in Metro Bank’s underlying profit before tax in the last quarter.
Later that same day, Arden explained on an analyst presentation call that this estimated increase in RWA included adjustments of “around £900mn” due to errors in Metro Bank’s risk weighting of certain commercial loan portfolios.
“Metro Bank was aware at the time that this figure was wrong and failed to qualify it or explain in the October Announcement [Q3 2018 results] that it was subject to an ongoing review and would require a substantial correction,” the FCA said.
“Metro Bank also failed to consider, and to seek legal advice on, whether the incorrect RWA figure ought to be qualified or explained in the October Announcement.
“As a result, Metro Bank failed to take reasonable care to ensure that the October Announcement was not false and misleading and did not omit relevant information.”
The £10mn fine follows a £5.4mn fine imposed by the Prudential Regulation Authority back in December 2021.
Donaldson was one of the bank’s founding executive team members when it entered the market in 2010. He left his post as chief executive, which he held from March 2009, in December 2019.
Arden, who joined the bank in March 2018, left his posts as chief financial officer in February of this year.
ruby.hinchliffe@ft.com
