FSA media advice will 'increase misinformation'

Leading national newspaper editors are alarmed about new guidance from the Financial Services Authority which seeks to effectively ban non-press office staff at financial services companies from talking to the press.

Financial Times editor Lionel Barber, Alan Rusbridger from The Guardian, David Schlesinger from Thomson Reuters and James Harding from The Times have all jointly written to the head of the FSA to express their outrage at advice contained in a newsletter from the regulator last month.

They have warned that new strict controls which are proposed on financial services companies talking to the press won’t work in the digital age and stop journalists from checking the truth of stories.

Although FSA Marketwatch newsletter 37 says on each page that it is not FSA guidance, its recommendations were still very clear.

It stated: ‘We are particularly concerned about the suspected practice of core insiders strategically leaking inside information; we have stated we will increase our efforts into the causes of leaks in individual cases.

“While it is difficult to measure the frequency of these leaks, we believe a significant number of leaks may be strategic. In relation to our takeover market cleanliness statistics published annually, reducing the frequency of leaks is likely to have an impact. To the extent that individuals trade on the leaked information, reducing the frequency of leaks should make takeover announcements less likely to display abnormal pre-announcement price movements on which the statistics are based…

“As a result, we believe regulated/unregulated firms and issuers can improve controls and we believe it is essential that senior management establish a robust anti-leaking culture in their organisations. We were also concerned about the apparent deficiencies in regulated firms’ media and compliance policies.”

The FSA recommends that “All non-media-relations personnel at regulated firms should be prohibited from directly responding to any initial enquiry from the media, regardless of seniority.”

In a joint letter to FSA chief executive Hector Sants the editors express their “profound concerns” over the recommendations in the newsletter which they say “represent in our view a misguided response to the perceived problem of leaks that will only injure the market integrity they purport to protect”.

The editors state: “Properly functioning financial markets rely on the flow of accurate and timely information, available to all participants simultaneously. In the world of instant media, the pressure on journalists is to publish information ahead of anyone else. This information, in turn, is swiftly picked up by others.

“So the media, contrary to the assumptions underlying the recommendations, actually play a key role in protecting investors and other markets’ participant by inhibiting the creation of an unlevel and unfair market place due to the limited circulation of insider information.

“The proposal that all contacts between journalists and regulated firms should become subject to a prior screening process is disproportionate and unacceptable, and should be corrected.

“These proposals reflect a wilful misunderstanding of the relationship between the City and the press and will ultimately do more harm than benefit to the flow of reliable information.

“Regulated firms will find it much easier to hide behind bland press releases that conceal inconvenient corporate realities and there is a heightened risk that journalists will feel compelled to publish unconfirmed reports and rumours, increasing the flow of misinformation.”

The FSA said in a statement: “Our Market Watch newsletter was published in response to concerns from both companies and investors about leaks of confidential inside information of listed companies. We have not changed in any way the nature of the obligation on firms to keep inside information confidential.

“There is an existing obligation on firms to disseminate information, via a Regulatory Information Service and we want to stress the importance of using this channel to ensure orderly and fair markets. If firms fail to properly control inside information or make announcements through the correct channels, it can potentially cause significant investor detriment. We have simply reminded firms of their existing obligations and provided best practice views around systems and controls.”

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