Tinkering at the edges: How the new Financial Conduct Authority is not living up to its own rhetoric of fixing what’s going wrong

A shorter version of this update appeared as an LMN press release on November 6th

New rules announced by the Financial Conduct Authority (FCA) to strengthen minority shareholders’ powers to hold companies to account are well intentioned but do not go far enough. They will not change the power dynamic within mining companies which enables them to ride roughshod over governance issues and therefore also over the lives of those directly affected by the destruction that these companies’ operations bring.

One year on from the publication of the last consultation paper on the rules for listing on the London Stock Exchange, and nearly a year on from the establishment of the new FCA, mining companies such as Bumi plc and ENRC continue to wreak havoc both in the financial markets of London and on the ground with their mining operations.

Yesterday, on the announcement of these new listing rules, David Lawton, the FCA’s director of markets, maintained that “active engagement by shareholders is essential to make markets work well.”

London Mining Network (LMN) and its member groups have raised concerns at Bumi plc’s shareholder meetings.  However, the company continues to operate with impunity on the London Stock Exchange (LSE), despite allegations of massive fraud, court cases, investigations by the Serious Fraud Office and share suspension.

Andrew Hickman from LMN group Down to Earth said:

“The way Bumi was set up in 2010 is now considered to be illegitimate, lacking in due diligence by the company, its founding shareholders, its lawyers, financiers and regulators.  Since then, corruption, mismanagement and social and environmental destruction have been revealed to be rife in the companies’ operations.  When will the UK’s financial regulator not just tinker at the edges, but get a grip on this situation and act to stop this abuse?”

Similarly, notorious UK-listed mining company Vedanta’s majority shareholder Anil Agarwal has had a “relationship agreement”, such as that proposed by the FCA, in place with the company he controls since 2005, making a mockery not only of the FCA’s intention but also the UK Corporate Governance Code of 2010.  Vedanta openly admits that it has violated the Code.*

The LMN has been working for root and branch change to the way mining companies operate on the London Stock Exchange.  In May 2012 it supported an amendment to the Financial Service Bill proposing that human rights, social and environmental considerations be taken into account when listing companies on the LSE, in line with Hong Kong Stock Exchange requirements. Last month, LMN accompanied community and civil society representatives from Indonesia and Colombia to meet with members of the Parliamentary Select Committee for Business, Innovation and Skills, currently conducting an enquiry into Extractive Industries.  Hendrik Siregar from the Indonesian Mining Advocacy Network (JATAM) and Jazmin Romero Epiayu from the Colombian indigenous organization, Fuerza de Mujeres Wayuu, both called upon UK listed mining companies to stop causing human rights abuses, and social and environmental destruction in their countries.

The two civil society representatives were in the UK to attend last month’s AGM of BHP Billiton, a company whose coal mining projects are bringing severe negative impacts for  communities in both Indonesia and Colombia.  Their concerns were conveyed to the BHP Billiton board at the AGM, as was a call for ‘active engagement’ on the issue of climate change through the candidacy of former coal company executive turned climate campaigner Ian Dunlop to the board.  BHP Billiton’s leadership rejected Ian Dunlop’s independent candidacy, stating that his climate change platform was a ‘single issue argument’.

On his appointment as the new head of the FCA, Martin Wheatley said that the financial authorities needed to “not just tick boxes” but to “look at what’s going wrong and take action.”  If the FCA is to act to ensure that the public and shareholders have an independent voice and effective oversight, it will need to seek powers to ensure more radical change is possible.

Richard Solly, Co-ordinator of London Mining Network said: 

“The FCA’s additional red-tape measures announced yesterday are toothless against UK-listed mining companies’ unwillingness to have independent voices on their boards or submit themselves to oversight by civil society, including the communities affected by their operations. BHP Billiton’s current rejection of Ian Dunlop is a prime example of a leading mining company closing ranks and just paying lip service to democracy and good governance.  The FCA is in danger of becoming as toothless as its predecessor.”

* See page 78 of Vedanta’s 2012-13 Annual Report

Further background see LMN's report UK-Listed Mining Companies & the Case for Stricter Oversight.

For more background on Bumi and BHP Billiton see DTE's coal campaign page.