Chapter 12: Oversight by Regulators

Question 1

Why must companies, especially those with external investors, ensure strong governance and compliance controls?

Answer 1

To maintain investor confidence and protect financial interests.
To prevent corporate misconduct such as insider trading or fraud.
To ensure legal and regulatory compliance at all levels of the organisation.
To update policies regularly in response to best practices and company changes.

Question 2

What historical financial crisis shares similarities with the 2008 global financial crisis?

Answer 2

The South Sea Bubble (1720) bears striking similarities to the 2008 crisis.
Both involved:
Directors and investors engaging in insider trading.
Widespread investor losses (small investors lost everything).
Political corruption (bribery of politicians).
Severe economic consequences lasting for years.

Question 3

What was the impact of the South Sea Bubble on corporate governance?

Answer 3

The collapse of the South Sea Company led to outrage and legal reforms.
Companies without a Royal Charter were banned initially.
The crisis contributed to the Joint Stock Companies Act of 1852, which:
Established the foundation for modern company law.
Introduced investor protection measures to prevent director misconduct.

Question 4

How does the Joint Stock Companies Act of 1852 influence corporate governance today?

Answer 4

It laid the groundwork for company law, ensuring:
Directors are accountable for their decisions.
Companies must protect investors from financial misconduct.
Corporate regulations continue evolving to address modern financial risks.

Question 5

Why is corporate governance essential for companies, especially those that have raised external finance?

Answer 5

Companies must ensure their governance and compliance controls are appropriate at all levels.
Good governance helps in:
Identifying and managing risks before they become critical.
Ensuring transparency in decision-making.
Strengthening investor confidence.
Enhancing business sustainability through ethical leadership.

Question 6

What recent corporate failures highlight the importance of strong governance?

Answer 6

Carillion plc, BHS Limited, and House of Fraser Limited collapsed due to financial mismanagement.
Poor governance was not the sole cause, but:
Stronger oversight could have detected warning signs earlier.
Governance processes could have helped boards act before reaching the tipping point.
Even the best governance practices cannot compensate for a poor corporate strategy if the board fails to adjust.

Question 7

What is the UK’s approach to corporate governance?

Answer 7

The UK follows a unitary board structure, meaning:
Directors share collective responsibility for company decisions.
No individual or group of directors should dominate discussions or limit accountability.
Listed companies must ensure transparency in the appointment of directors, including:
Selection criteria.
Recruitment processes.
Justifications for appointments over other candidates.

Question 8

What is the UK Corporate Governance Code, and why is it important?

Answer 8

First introduced in 1992 by the Cadbury Committee, last updated in 2018.
Defines corporate governance as the system by which companies are directed and controlled.
Key responsibilities of the board of directors include:
Setting strategic aims and leadership.
Supervising management and business operations.
Ensuring accountability to shareholders.
Following legal and regulatory obligations.

Question 9

How should board composition be structured for effective governance?

Answer 9

A balance of executive and independent directors ensures oversight.
Larger companies should have more independent directors to scrutinise management.
Boards must be free from conflicts of interest.

Question 10

What are the OECD Principles on Corporate Governance?

Answer 10

The OECD first issued corporate governance principles in 1999, updated in 2015.
It outlines six key responsibilities for boards:

1. Act with good faith, due diligence, and in the best interests of shareholders.
2. Treat all shareholders fairly, even when decisions impact groups differently.
3. Maintain high ethical standards and consider stakeholders’ interests.
4. Fulfil key functions, including:
   Reviewing corporate strategy, risk policies, budgets, and acquisitions.
   Overseeing senior executive appointments and succession planning.
   Ensuring board transparency in director elections.
   Monitoring financial integrity and managing conflicts of interest.
   Ensuring timely disclosure of price-sensitive information.
5. Exercise independent judgment on corporate affairs.
   Boards should limit directorships to prevent overcommitment.
   Establish additional board committees where needed.
   Conduct regular board evaluations.
6. Support employee board representatives (if required by law).
   They must have access to training and key information to contribute effectively.

Question 11

What are the benefits of having written corporate governance policies?

Answer 11

Ensures transparency and ethical business conduct.
Clarifies decision-making authority within the company.
Improves investor and stakeholder trust.
Standardises governance practices across the organisation.

Question 11

What lessons can companies learn from the Tesco scandal?

Answer 11

Corporate governance must prioritise financial accuracy and transparency.
Short-term financial ‘gains’ from unethical practices lead to long-term losses.
Even if individuals are acquitted, companies can still be held responsible.
Regulators will impose severe penalties for misleading financial information.

Question 12

What key areas should corporate governance policies cover?

Answer 12

Board elections and diversity policies.
Composition and independence of audit, nomination, and remuneration committees.
Disclosure of financial and operational information.
Senior executive remuneration below board level.
Board meeting structure and frequency.
Dividend policy and shareholder rights.
Matters reserved for the board (strategic decisions).
Delegated authority for management.
Whistleblowing protections for employees.

Question 13

What factors should be considered in a board evaluation?

Answer 13

Clear objectives are essential—without them, the evaluation will be unfocused.
Evaluations may focus on specific groups, such as:
Non-executive directors.
Executives.
Chair or senior independent directors.
Feedback from non-directors (e.g., regular board participants) may also be useful.
Budget constraints may impact evaluation format, though FTSE 100 companies face fewer financial limitations.
External evaluations are recommended every three years, but boards may choose to do them more frequently.

Question 13

Key Takeaways for Exam Preparation

Answer 13

Corporate governance strengthens decision-making and risk management.
The UK follows a unitary board model, promoting collective responsibility.
The UK Corporate Governance Code (2018) sets best practices for board oversight.
The OECD Principles (2015) outline six core governance responsibilities.
Written governance policies ensure transparency and accountability.

Question 14

What happened in the Tesco accounting scandal?

Answer 14

In 2014, it was revealed that Tesco had overstated its profits by over £250 million.
This resulted in Tesco’s share price falling by £2 billion.
In 2019, despite three executives being acquitted of wrongdoing:
Tesco’s UK subsidiary admitted to overstating profits.
Entered into a Deferred Prosecution Agreement (DPA) with the Serious Fraud Office (SFO).
Paid a £129 million fine.

Question 15

Why is board evaluation important in corporate governance?

Answer 15

While most companies accept the need for employee appraisals, board evaluations often face resistance.
A strong board requires more than talented individuals—effective teamwork is key.
The chair and company secretary play vital roles in balancing board dynamics and ensuring effective decision-making.

Question 15

What does the UK Corporate Governance Code recommend for board evaluations?

Answer 15

FTSE 350 companies must conduct an independent board evaluation at least once every three years.
Boards must also undertake formal and rigorous annual evaluations of:
The board’s overall performance.
The performance of board committees.
The effectiveness of individual directors.
Listed companies must disclose details of external board evaluations in their annual reports.

Question 16

What are the two key areas assessed in board evaluations?

Answer 16

Board structure – Composition, procedures, and governance framework.
Board behaviour and activities – How well directors work individually and collectively.

Individual evaluations assess whether each director is effectively contributing to governance.

Question 17

What are the main reasons for conducting board evaluations?

Answer 17

Addressing a specific need identified by the board.
Benchmarking board performance against other companies.
Ensuring the board is as effective as possible.
Building on improvements from previous evaluations.

Question 18

What are the pros and cons of internal vs. external board evaluations?

Answer 18

Advantages
Internal Evaluation Less costly, familiar with company culture
External Evaluation Brings fresh perspectives, benchmarks against other boards

Disadvantages
Internal Evaluation Less objectivity, potential for bias
External Evaluation More expensive, directors may resist external scrutiny

External facilitators offer valuable insights, but their involvement can be controversial.

Question 19

What should be done with board evaluation results?

Answer 19

The board must review findings and act on recommendations.
Listed companies should:
Disclose the evaluation process in their annual report.
Implement follow-up actions to address identified weaknesses.
The goal of board evaluations is continuous improvement, not just compliance.

Question 20

Key Takeaways for Exam Preparation

Answer 20

FTSE 350 boards must conduct external evaluations every three years and annual internal reviews.
Evaluations assess board structure, director effectiveness, and governance practices.
Clear objectives ensure evaluations are productive and unbiased.
Boards must review and act on evaluation results for continuous improvement.

Question 20

Why should board evaluation be an ongoing process rather than a one-time exercise?

Answer 20

Governance challenges evolve, requiring continuous improvement.
Evaluations help identify barriers to effectiveness and create strategies to overcome them.
A well-structured evaluation leads to stronger governance, improved decision-making, and long-term business success.

Question 21

How often should listed companies undertake a board evaluation?

Answer 21

i) Internally Every year ii) Externally facilitated At least every three years – FTSE 350 companies

Question 22

Must every director be evaluated every year?

Answer 22

UK Corporate Governance Code provision 21 provides that for listed companies there should be a formal and rigorous annual evaluation of the performance of the board, its committees, the chair and individual directors

Question 23

Should evaluations follow the same format and cover the same topics each year?

Answer 23

nO

Question 24

Why is board evaluation essential in corporate governance?

Answer 24

Ensures the board operates efficiently and effectively. Acts as a check and balance to prevent governance failures. Helps identify and correct board dynamics issues, such as one DIrector dominating discussions. Encourages proper decision-making and accountability among directors.

Question 25

What governance failure was seen in the Kids Company case?

Answer 25

Kids Company was a high-profile charity with strong government backing. Despite its influence, the board failed in key governance duties: Did not adequately assess risks to the organisation. Failed to set a clear strategy for long-term sustainability. Did not properly hold executives accountable, especially the CEO. The CEO’s dominant personality discouraged internal challenge, leading to poor oversight.

Question 26

How did the board’s failure at Kids Company contribute to its collapse?

Answer 26

A lack of internal challenge meant that strategic weaknesses were not addressed. Board members were unable to hold the CEO accountable, which led to unchecked financial mismanagement. Ultimately, the charity collapsed due to poor governance and unsustainable financial practices.

Question 27

What lessons can be learned from the Kids Company case about board effectiveness?

Answer 27

A strong board must ensure all directors contribute equally—no individual should dominate discussions. Regular board evaluations help identify weaknesses in decision-making and accountability. Directors must actively challenge and scrutinise executive decisions to prevent governance failures. Even high-profile organisations with government backing need strong governance structures.

Question 28

What is the primary duty of company directors under corporate law?

Answer 28

Directors have statutory, fiduciary, and common law duties. Their primary duty is to act in the best interests of members (shareholders). They must also consider stakeholders’ interests, but shareholders’ interests take precedence except in cases of insolvency or creditor compromise.

Question 29

What is the role of CA2006 s.172 in stakeholder protection?

Answer 29

CA2006 s.172 requires directors to "have regard" to stakeholder interests while acting in shareholders’ best interests. The Insolvency Act 1986 provides additional protection in cases of financial distress. Directors must consider the long-term success of the company, employee interests, business relationships, and environmental impact.

Question 30

Who are the key stakeholders in a company?

Answer 30

Stakeholders include: Members (shareholders) – Primary beneficiaries of the company’s success. Directors – Responsible for decision-making and governance. Creditors – Those owed money by the company. Suppliers – Provide goods and services to the company. Local community – Affected by company operations and policies. Employees (current and former) – Workers whose livelihoods depend on the company. The environment – Impacted by corporate activities. The government – Ensures regulatory compliance and tax obligations.

Question 30

What additional reporting requirements apply to large companies under C(MR)R 2018?

Answer 30

Companies that exceed 2,000 employees or have a turnover above £200 million and assets over £1 billion must publish a corporate governance statement. This must include: Which corporate governance code was applied. How the company followed the code. Any deviations from the code and reasons for doing so. If no governance code was applied, the company must explain what governance measures were used instead.

Question 30

What are the two main options available to members under the Act to take action against directors?

Answer 30

Actions for unfair prejudice or derivative action claim

Question 31

How has the importance of s.172 increased in recent years?

Answer 31

The 2018 update to the UK Corporate Governance Code and the Wates Principles have strengthened s.172 compliance. Large private and public companies must now publish a s.172 statement detailing how directors have considered stakeholder interests.

Question 31

Which stakeholder groups receive the most legal protection?

Answer 31

Members (Shareholders) – Protected by governance rules and legal action rights. Employees – Protected under employment laws, TUPE regulations, and redundancy rights. Directors – Can take out indemnity insurance for protection against legal claims (except in cases of fraud or deliberate wrongdoing). Creditors – Can withhold services, sue for payment, or claim assets in liquidation (though unsecured creditors often receive low priority).

Question 32

What are the Wates Principles for corporate governance in large private companies?

Answer 32

Issued in 2018, these principles provide guidance for large unlisted companies: Purpose – Boards must promote the company’s purpose, aligning values, strategy, and culture. Composition – Boards must have a balanced mix of skills, experience, and knowledge. Responsibilities – Boards must ensure clear accountability and sound decision-making structures. Opportunity and Risk – Boards must balance long-term success with effective risk management. Remuneration – Executive pay should align with long-term company sustainability. Stakeholders – Boards must engage meaningfully with stakeholders and consider their views in decision-making.

Question 33

What was the Lloyds Banking Group (LBG) lawsuit about?

Answer 33

In 2009, during the financial crisis, Lloyds Banking Group (LBG) took over HBOS. 6,000 shareholders sued LBG and its directors, claiming: They were misled about HBOS’s financial condition. The bank failed to disclose key financial risks before the shareholder vote. The merger caused significant financial losses to investors. The shareholders sought £550 million in damages.

Question 33

How should companies balance stakeholder interests and corporate social responsibility (CSR)?

Answer 33

Companies should develop a Corporate Social Responsibility (CSR) policy to: Consider environmental sustainability. Maintain positive community relations. Balance financial, ethical, and social responsibilities. While directors must "have regard" to stakeholders, s.172 does not give stakeholders the right to sue if their interests are ignored. Only the Insolvency Service can bring action for violations.

Question 33

Key Takeaways for Exam Preparation

Answer 33

Directors must prioritise shareholders but consider stakeholder interests (CA2006 s.172). The Wates Principles (2018) provide corporate governance guidance for large private companies. Large companies must publish a s.172 statement and corporate governance report (C(MR)R 2018). Employees, creditors, and shareholders have varying degrees of legal protection. Companies must balance economic success with social and environmental responsibilities.

Question 34

What did the court decide in the LBG shareholder lawsuit (2019)?

Answer 34

The court ruled in favour of LBG and its directors. It found that certain additional disclosures should have been made, but: 96% of shareholders voted in favour of the merger. The extra information would not have significantly changed shareholder votes. The lack of additional disclosure did not directly cause financial losses.

Question 34

Of whose interests should directors be most mindful?

Answer 34

The Members

Question 35

How common is shareholder legal action against companies and executives?

Answer 35

Rare and expensive – Legal disputes require significant financial resources. Shareholders usually rely on corporate governance mechanisms rather than lawsuits. Legal action is mostly pursued in major financial disputes where shareholders believe they have suffered substantial losses due to company mismanagement.

Question 36

What lessons can be learned from the LBG shareholder case?

Answer 36

Courts require strong evidence that omissions caused financial loss. Companies must ensure transparency in shareholder communications. Even in high-profile cases, shareholder lawsuits are difficult to win. Proper governance and disclosure policies can help prevent legal disputes.

Question 37

Are companies required to provide access to their statutory records?

Answer 37

Yes, all companies must allow access to their statutory records and certain documents when requested by individuals or organisations. Transparency is a legal obligation to ensure compliance with corporate regulations.

Question 38

Which organisations have the power to investigate a company’s affairs?

Answer 38

The main regulatory bodies with investigation powers include: BEIS (Department for Business, Energy & Industrial Strategy). The Insolvency Service – Investigates financial misconduct and insolvency-related matters. Other government departments may also conduct investigations, depending on the issue.

Question 39

What is the role of the Department for Business, Energy and Industrial Strategy (BEIS) in company investigations?

Answer 39

BEIS regulates all UK companies and has powers under the Companies Act 1985 (CA1985) to investigate company affairs. Investigations may be conducted by appointed inspectors (usually an accountant and a barrister) or by BEIS officials who examine company records. Investigations can cover fraud, misconduct, financial irregularities, and shareholder disputes.

Question 39

Do investigators have the right to enter business or residential premises?

Answer 39

Most government investigators do NOT have automatic entry rights to company premises. A warrant is required to enter and search premises. Only a police officer can serve a valid search warrant.

Question 40

What are the implications of regulatory investigations for businesses?

Answer 40

Companies must comply with requests for statutory records to avoid penalties. Failure to cooperate may lead to enforcement actions or legal proceedings. Regulatory investigations can damage a company's reputation, even if no wrongdoing is found. Proper record-keeping and compliance policies can help prevent regulatory scrutiny.

Question 41

What powers do BEIS inspectors have when investigating companies?

Answer 41

Inspectors can require production of documents from company officers, bankers, solicitors, and auditors. They can question individuals under oath and compel cooperation. They do NOT have automatic entry rights to business premises. If companies fail to produce documents, inspectors can apply for a search warrant under CA1985 s.448, allowing police officers to: Enter specified premises. Search and seize relevant documents. Require explanations from individuals present.

Question 42

What are the six main types of BEIS investigations?

Answer 42

Appointment of inspectors to investigate company affairs. Investigation of company ownership (e.g., hidden shareholdings). Investigation of directors’ share dealings. Production of company documents for regulatory review. Investigations to assist overseas regulatory authorities. Investigations under the Financial Services and Markets Act 2000 (FSMA2000).

Question 43

When can BEIS appoint inspectors to investigate a company?

Answer 43

The Secretary of State can appoint inspectors if: The company requests it. At least 200 shareholders (or 1/5 of members for non-share capital companies) request it (rarely happens). A court orders an investigation. There is evidence of: Fraudulent or unlawful activities. Misconduct by company officers. Failure to provide shareholders with reasonable information.

Question 44

What are the legal obligations of companies and individuals under investigation?

Answer 44

Companies must provide all relevant documents to inspectors. Individuals must attend interviews and answer questions truthfully. The right to remain silent does not apply—refusal to answer questions can result in contempt of court charges. Any evidence given under investigation can be used in court.

Question 45

What happens after a BEIS investigation?

Answer 45

Inspectors report their findings to the Secretary of State. The report may or may not be made public, depending on public interest considerations. If criminal offences are found, the case is referred to law enforcement agencies for prosecution. If civil proceedings are necessary, BEIS may bring legal action on behalf of the company. Investigation costs are covered by BEIS, but: Convicted individuals may be required to pay investigation costs. If shareholders requested the investigation, the company may be liable for costs.

Question 45

How does BEIS investigate company ownership and shareholding structures?

Answer 45

BEIS can investigate hidden ownership structures to identify individuals controlling or influencing management. Inspectors may demand information from: Shareholders Debenture holders Other financial stakeholders Failure to provide information can result in fines or imprisonment.

Question 46

How does BEIS assist overseas regulatory authorities?

Answer 46

BEIS has powers under CA1989 ss. 82–91 to help foreign regulators investigating UK companies. They can: Conduct interviews under oath. Demand documents and records. Assist only if reciprocal cooperation would be provided by the foreign authority.

Question 46

What are BEIS’s powers regarding the production of documents?

Answer 46

BEIS can order direct document production from a company or any individual holding relevant records. Inspectors can request explanations of any document content. Failure to comply or providing false information is a criminal offence. Legal professional privilege applies—documents covered by solicitor-client privilege do not need to be disclosed.

Question 47

What types of investigations does HMRC conduct?

Answer 47

Civil investigations – Reviewing tax returns, tax credits, and allowances. Criminal investigations – Used for serious tax fraud, organised crime, and tax evasion schemes. Direct tax investigations – Focus on income tax, PAYE, National Insurance (NI), and corporation tax. Indirect tax investigations – Focus on VAT and excise duty compliance.

Question 47

When does HMRC conduct criminal investigations?

Answer 47

Criminal investigations are reserved for serious cases, such as: Organised crime or large-scale tax fraud. Falsifying tax documents or submitting false claims. Deliberate tax evasion, money laundering, and fraud conspiracies. Using false or forged documents in tax schemes. Threats or assaults against HMRC officers. Smuggling and customs offences.

Question 48

What are the risks of non-compliance with HMRC investigations?

Answer 48

Failure to provide documents can result in fines or imprisonment. Making false or reckless statements is a criminal offence. Non-compliance may escalate the investigation from civil to criminal proceedings.

Question 48

What legal powers does HMRC have in criminal investigations?

Answer 48

Can obtain court orders requiring production of documents. Can apply for search warrants to enter premises. Limited HMRC officers have powers of arrest (for tax-related offences only). Uses the Police and Criminal Evidence Act 1984 (PACE) in England & Wales.

Question 49

How does HMRC conduct direct tax investigations?

Answer 49

HMRC can request documents and information under laws such as: Taxes Management Act 1970, s.20. Finance Act 1998, Sch. 18. Corporation Tax Regulations 1998. Companies must comply within a minimum of 30 days.

Question 49

Does HMRC have automatic entry rights for tax investigations?

Answer 49

No, HMRC does NOT have automatic entry rights. HMRC must: Obtain a warrant from a circuit judge (Taxes Management Act 1970, s.20C). The warrant must be served by a police officer. Privileged documents (e.g., legal, medical, and religious records) cannot be seized.

Question 49

How does HMRC conduct indirect tax investigations (VAT & excise duties)?

Answer 49

Governed by the VAT Act 1994 and Customs & Excise Management Act 1979. HMRC selects businesses for VAT checks based on: Unusual VAT return figures. Intelligence received from other sources. Links to suspected fraud cases. - Unannounced visits can occur, but officers: Do NOT have the right to search for records. Can be asked to leave if their visit is inconvenient.

Question 49

What powers does the FCA have under FSMA2000 s.165?

Answer 49

The FCA can require the production of documents from: Authorised or formerly authorised persons. Individuals or firms connected to an authorised person. Investment companies, recognised exchanges, and clearing houses. The PRA has similar powers (FSMA2000 ss.165A & 165B) for financial stability investigations.

Question 50

Key Takeaways for Exam Preparation

Answer 50

HMRC conducts civil and criminal investigations into tax compliance. Criminal investigations target serious fraud, organised crime, and deception. HMRC needs a warrant (served by police) to enter premises for tax investigations. Businesses must comply with document requests or risk penalties. Unannounced VAT visits allow inspection but not searching of records.

Question 50

How should businesses respond to an HMRC visit?

Answer 50

Scheduled visits – Businesses must answer HMRC’s questions and provide requested documents. Unannounced visits – Businesses can: Request the officers leave if inconvenient. Restrict them to a clear room under supervision. Avoid giving uncontrolled access to records.

Question 50

What are the roles of the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)?

Answer 50

FCA – Regulates conduct in financial services and securities markets. PRA – Ensures the financial stability of banks, insurers, and major investment firms. Both have investigation and enforcement powers under Part XI of the Financial Services and Markets Act 2000 (FSMA2000).

Question 50

Does the FCA have the right to enter and search premises?

Answer 50

No, FCA investigators do not have automatic entry rights. To search premises, the FCA must obtain a warrant from: A justice of the peace (England & Wales). A sheriff (Scotland). A warrant must be executed by a police officer, and may be granted if: A request for documents has not been complied with. There is a risk that documents will be moved, altered, or destroyed. A serious offence is suspected, and relevant documents are likely on-site.

Question 51

What powers do FCA-appointed investigators have?

Answer 51

Under FSMA2000 s.167, they can: Require interviews and document production from the firm under investigation. Under FSMA2000 s.168, their powers extend to third parties who may hold relevant information. Under FSMA2000 s.175, investigators can demand explanations for any document. Confidential banking documents require consent before disclosure, unless the FCA or Secretary of State grants special approval.

Question 51

When can the FCA appoint a competent person for a full investigation?

Answer 51

Under FSMA2000 s.167, the FCA may investigate: A company’s business operations. Ownership or control of an authorised firm. Under FSMA2000 s.168, the FCA may investigate specific offences, such as: Market abuse (FSMA2000 s.188). Misleading financial statements (FSMA2000 s.397). Insider trading (Criminal Justice Act 1993). Money laundering offences. The FCA also investigates UK firms on behalf of overseas regulators (FSMA2000 s.169).

Question 51

What is a ‘skilled person report’ under FSMA2000 s.166?

Answer 51

Instead of demanding documents, the FCA can order a firm to commission an independent report. The firm pays for the report, but the FCA controls its scope, process, and timeline. Skilled persons include accountants, auditors, and legal experts.

Question 51

What other enforcement powers does the FCA have?

Answer 51

The FCA enforces anti-money laundering and financial crime regulations. After Brexit, the FCA took over many enforcement powers previously held by ESMA (European Securities and Markets Authority).

Question 51

What are the penalties for non-compliance with FCA investigations?

Answer 51

Failure to comply may result in contempt of court charges (FSMA2000 s.177). Providing false or misleading information may result in: A fine of up to £5,000. Up to six months’ imprisonment. Both a fine and imprisonment.

Question 51

Key Takeaways for Exam Preparation

Answer 51

The FCA and PRA regulate financial services and investigate misconduct under FSMA2000. The FCA can demand documents, commission reports, and appoint investigators. Investigators can interview individuals, demand documents, and refer cases for prosecution. Failure to comply can result in fines, imprisonment, or contempt of court charges. The FCA must obtain a warrant to search premises, which must be executed by police.

Question 52

In general how is the power of entry and search granted and who to?

Answer 52

By the courts/magistrates to a police constable

Question 52

Can an HMRC inspector with the power of arrest make an arrest for any criminal offence?

Answer 52

No, their power is limited to HMRC offences

Question 52

What is the role of the Competition and Markets Authority (CMA)?

Answer 52

The CMA is responsible for enforcing competition law in the UK. It investigates anti-competitive behaviour, market dominance abuse, and merger control. The CMA took over the Competition Commission and Office of Fair Trading in 2014

Question 53

Can the CMA enter business or residential premises without a warrant?

Answer 53

Yes, under CA1998 s.27, CMA officers can enter without a warrant to request documents. No forced entry or searching is allowed under this section. If entry is refused, the CMA can escalate the process by obtaining a warrant

Question 53

When can the CMA obtain a warrant for entry and search?

Answer 53

CA1998 s.28 – Allows the CMA to apply for a High Court warrant to enter and search business premises. CA1998 s.28A – Extends search powers to domestic premises. EA2002 s.194 – CMA can request a warrant if: A document request has been ignored. There is reason to believe documents will be moved, altered, or destroyed. A serious offence has been or is being committed. The warrant must be executed by police officers.

Question 53

What powers does the CMA have to obtain documents?

Answer 53

Enterprise Act 2002 (EA2002) s.193 & s.224 – CMA can require persons to attend interviews or provide documents. Competition Act 1998 (CA1998) s.26 – CMA can issue a written notice demanding documents or information. Notices must include: The subject matter and purpose of the investigation. A description of the documents required. The potential offences for non-compliance.

Question 54

What investigative powers does the CMA have for mergers and market dominance?

Answer 54

Under EA2002 ss.31, 109 & 176, the CMA can: Demand documents relevant to merger investigations. Require individuals to attend interviews. Obtain evidence of abuse of market dominance.

Question 54

How does the CMA cooperate with other jurisdictions?

Answer 54

The CMA can act on behalf of other EU member states under CA1998 ss. 65E–H. This allows cross-border competition investigations, particularly in cartel cases.

Question 55

Why is it important for a company secretary to understand the rights of regulators, HMRC, and the police?

Answer 55

Regulators and law enforcement may request access to company premises to conduct investigations. Most regulators do NOT have automatic search powers—they typically require a warrant. Company staff must be trained to handle regulatory visits properly to avoid legal risks.

Question 55

What is the role of the Panel on Takeovers and Mergers?

Answer 55

Independent body regulating mergers and acquisitions in the UK. Enforces the City Code on Takeovers and Mergers. Ensures fair treatment of shareholders in takeover bids.

Question 56

What powers does the Panel have to demand documents?

Answer 56

CA2006 s.947 – The Panel can issue a written notice requiring: Specific documents or information related to a takeover. Information in a particular format within a reasonable timeframe. Authentication of documents as per Panel requirements. CA2006 s.947(5) – The Panel may authorise another person to collect evidence on its behalf.

Question 56

Can the Panel enter or search premises?

Answer 56

No, the Panel does NOT have a right of entry or search. It must rely on voluntary cooperation or seek court orders if needed.

Question 57

How does the Panel ensure confidentiality?

Answer 57

CA2006 s.948 – The Panel cannot disclose private information, except: If the information is already publicly available. If disclosure is necessary for regulatory functions. If the person consents to disclosure.

Question 58

Key Takeaways for Exam Preparation

Answer 58

The CMA enforces competition law and investigates cartels, mergers, and abuse of market dominance. The CMA can enter premises without a warrant (CA1998 s.27), but forced entry requires a warrant (CA1998 s.28). The Panel on Takeovers and Mergers enforces takeover rules but has no search or entry powers. The Panel can demand documents under CA2006 s.947 but must protect confidential information (s.948).

Question 59

Who is usually responsible for handling unexpected regulatory visits?

Answer 59

Reception staff, office managers, or security personnel are often the first point of contact. These employees must be trained to: Ask regulators to wait in a meeting room. Notify a senior manager, company secretary, or director immediately. Check for proper identification and documentation before granting access.

Question 59

What should a company do when faced with a regulatory visit?

Answer 59

Confirm the inspector’s identity and authority before allowing access. Request copies of any warrants or legal notices. Ensure a senior company representative is present before answering questions. Limit access to a controlled area—inspectors should not have free access to company records.

Question 60

What are the risks of mishandling a regulatory visit?

Answer 60

Untrained staff may give inspectors access to confidential information. Failure to comply with document requests may result in fines or legal penalties. Providing false or misleading information can lead to criminal charges.

Question 60

Do regulators have automatic search powers when visiting company premises?

Answer 60

No, most regulators can only request document production—they do not have search powers. Exceptions include: HMRC (for tax fraud cases with a warrant). CMA (for cartel investigations with a High Court warrant). FCA (for financial crime investigations with a warrant). Police officers require a warrant unless investigating an immediate criminal offence.

Question 61

Key Takeaways for Exam Preparation

Answer 61

Most regulators can request documents but do NOT have search powers without a warrant. Reception staff and office managers must follow procedures for regulatory visits. Inspectors should be asked to wait until a senior official (company secretary or director) is available. Failure to comply with document requests or providing false information can result in penalties.