For additional clarity on these points – particularly on when an individual is 'knowingly concerned' in a firm’s integrity breach – we await the Upper Tribunal’s decision on the company's CEO's reference of related action against him; the hearing will commence on 16 February 2026.
Background and findings
The FCA fined Richard Adam (£232,800) and Zafar Khan (£138,900), former Finance Directors of collapsed construction company Carillion plc. Both individuals were found to have been ‘knowingly concerned’ in the company’s breaches of market disclosure obligations and related controls requirements, specifically the company’s breaches of MAR art.15 (market manipulation), Listing Rule 1.3.3R (misleading announcements), Listing Principle 1 (controls) and Premium Listing Principle 2 (now Listing Principle 4 – acting with integrity to actual and potential shareholders).
The FCA's case centred on a December 2016 trading update made during Adam’s tenure, and a March 2017 annual results announcement and May 2017 AGM statement made during Khan’s tenure. These announcements painted a positive picture of Carillion’s financial performance, when in fact both individuals knew of ‘warning signs’ indicating significant deterioration in the company’s UK construction business, Carillion Construction Services (CCS)).
On 10 July 2017 the company announced a new provision which exceeded its total profits over the prior six years. Its share price fell substantially.
Heeding the warning signs
The FCA’s case rested on internal information that the individuals received but did not act upon, for example by bringing it to the Board’s or Audit Committee’s attention or ensuring it was reflected in public announcements. This information included internal figures for amounts that were included in CCS forecasts but were unlikely to be recovered; quarterly reports summarising major contracts showing 'likely' exposures on contentious amounts; and project teams' loss forecasts.
From this, the FCA concluded that both individuals were knowingly concerned in the company’s breaches of market disclosure obligations and acted recklessly.
Matching controls to risks
The FCA found that both individuals were responsible (either solely or jointly with the Group CEO) for relevant internal controls. Given business deterioration and internal pressure to meet targets, there was increased risk of overly aggressive accounting judgments to meet market expectations on financial performance. Yet the FCA found controls shortcomings including no clear record of accounting judgments and their reasons and unreconciled inconsistencies between internal reports and escalations. The FCA found that both individuals knew about these issues but took no or insufficient steps to resolve or escalate them.
Lack of integrity
On Premium Listing Principle 2 (now Listing Principle 4) the FCA:
- Attributed the Finance Directors’ recklessness to the company.
- Found that in the circumstances of this case this recklessness constituted a lack of integrity on the part of both the Finance Directors and the company in relation to actual and potential shareholders.
- Found the Finance Directors knowingly concerned in the company's integrity breach (giving little reasoning for this finding).
Including contingent deferred compensation in financial penalty calculations
When calculating penalty, which was based on remuneration earned in the year prior to the end of the breach, Adam successfully argued that only one-third of the value of certain deferred compensation should be included for the relevant year because the proportion which would vest depended on the company’s performance over a three year period (which encompassed the year in question). Individuals negotiating future settlements based on deferred compensation may argue the same point.
Insights
'Knowingly concerned' - a low bar
To be 'knowingly concerned' in a company’s breach, an individual must have been actually involved in the breach and must have knowledge of the facts on which the breach depends – but need not know that the facts constituted a regulatory breach.
For example, to be knowingly concerned in the company’s breach of MAR art.15 in the market announcements context, an individual need not know that the announcement was misleading. Instead, the individual must know the announcement’s content, and sufficient facts to support the conclusion that the company ought to have known it was misleading (for example, from internal reporting). Similar reasoning applies to Listing Rule 1.3.3R.
In relation to the Listing Principle 1 obligation for a company to take reasonable care' to comply with its obligations, the individual must know only the steps the company took to comply (which proved inadequate), not that the company did not comply.
The FCA gave scant reasons on when an individual is 'knowingly concerned' in a company’s integrity breach. The former CEO of Carillion has not settled with the FCA, so any Upper Tribunal decision on his challenge to the FCA’s Decision Notice against him will be closely watched for clearer guidance.
'Recklessness', reliance and integrity
An individual may be found to be reckless in relying on a company’s controls and the judgment of experienced delegates.
The risk arises if an individual is aware, for example, that an announcement is misleading or controls are inadequate, and then fails to respond appropriately to that risk e.g. by taking it into account when approving an announcement, informing governance bodies of contradictory relevant internal reporting, or addressing controls inadequacies.
Individuals should critically examine and challenge if they see warning signs, particularly if they have responsibility for the company’s compliance with legal and regulatory obligations.
Additionally, recklessness can constitute a lack of integrity where there is "an objective failing of ethics or morals" – in this case, approving announcements despite warning signs, and failing to inform governance bodies of those warning signs.
Practical tips: mitigating personal risks
These actions deliver important, if nuanced, messages to senior individuals, particularly those in finance roles at listed companies and regulated firms.
- Don’t ignore 'red flags', whatever their origin. The FCA rejected the individuals’ arguments that, as some of the information that should have put the individuals on notice was not part of 'core' financial reporting, it could be disregarded. Instead, it was important to take reasonable steps to address risks that appeared significant. Further, an individual may become obliged to act merely by passively receiving information, and even if received incrementally and from various sources.
- Exercise caution relying on others. Where there are warning signs, an individual’s latitude to rely on the judgements of delegates (even if they are experienced) will diminish. Independent challenge and verification becomes important.
- Report relevant information to the Board and Audit Committee. An individual should ensure that those bodies have all information relevant to their decision-making.
- Manage risk to avoid being found reckless. An individual does not need to know that facts amount to a breach. But if they are aware of a risk (e.g. that an announcement is misleading or controls are inadequate) and run the risk regardless, they could be found reckless and to lack integrity. Taking appropriate action to respond to known risks is therefore key.
- Document all reasonable steps. Particularly when risks emerge, to mitigate future enforcement risk an individual should carefully document the steps that they take, including enquiries made and challenge offered, the reasons for taking (or not taking) action, and the escalations made.
In short: passive reliance on relevant controls or on the judgement of others by an individual who is on notice of a risk may leave them personally exposed, so when warning signs arise, individuals are well advised to act.
