FSMA Hits the Nail on the Head, but Lacks the Hammer: How Credible Is the Financial Regulator Still in the Nyrstar Case?

Now that the investigating judge has formally placed Nyrstar under suspicion for forgery, the filing of false annual accounts, and misuse of corporate assets, the FSMA has taken a highly remarkable step. According to the regulator, the proposed dissolution of the company must in no way jeopardise the ongoing criminal investigation, nor undermine the company’s ability to pursue claims against responsible third parties.

At first glance, this appears to be a decisive intervention. Particularly in light of last year’s disappointing ruling by the Sanctions Committee, which largely set aside four years of work and two incisive reports from the Auditor. While the company was ultimately sanctioned for market manipulation, Trafigura and the individual directors escaped accountability.

Now that Nyrstar has been formally placed under suspicion in the criminal investigation, the FSMA appears to be publicly calling the company to account. In doing so, the regulator is undoubtedly correct. Indeed, the FSMA is entirely right when it emphasises that the company must retain the ability to pursue responsible third parties.

If there has indeed been misuse of corporate assets, resulting in the diversion of assets by third parties, those assets must naturally be recoverable from the parties liable for the misconduct (which, according to minority shareholders, include Trafigura and the directors). This is not only a legal necessity but also a matter of fundamental importance for shareholders.

However, while the FSMA’s analysis is convincing, its enforcement falls short.

The regulator seems satisfied with the commitment that Nyrstar will obtain an opinion from an external law firm regarding the implications of the dissolution for the criminal investigation and the company’s ability to pursue potential claims against responsible third parties.

This is the crux of the matter.

The FSMA allows Nyrstar itself to select the law firm that will assess a decision actively persued by its own Board of Directors.

The regulator adds that the appointed firm may not be Nyrstar’s regular legal counsel nor that of its directors. In itself, this constitutes an expression of distrust towards the existing directors and advisers.

Yet, at the same time, the choice of adviser is entirely entrusted to the company that has already been sanctioned by the FSMA’s own Sanctions Committee for market manipulation and is now been formally placed under suspicion for serious offences in the ongoing criminal investigation.

Moreover, Nyrstar is contractually bound by a loan agreement with its reference shareholder, Trafigura. Under that agreement, Nyrstar is required, as part of its litigation strategy, to consult Trafigura and take its views into account when selecting legal advisers.

As a result, the company must consider Trafigura’s opinion when appointing the supposedly independent adviser, even though the outcome of that advice is of significant importance to Trafigura itself.

How independent can such an adviser—and its opinion—really be?

And how credible is regulatory oversight when the party at the centre of the case is allowed to select the adviser responsible for assessing the legal justification of its own dissolution?

What may appear to be a reprimand could ultimately become a lifeline for the Board of Directors: proceeding with the dissolution, shielded by a legal opinion.

This is Pontius Pilate at His Best

The FSMA projects an image of decisive action, yet leaves strategic control with the very party that is the subject of the criminal investigation. This undermines confidence in the regulator's ability to exercise effective oversight.

Investors do not need legal smokescreens; they need a regulator that acts decisively when circumstances require it.

A strong capital market begins with a strong regulator.

Is it not time for the responsible minister to intervene?