FSA locks horns with editors over rules to stop insider trading
Editors say proposals to tape journalists threaten press freedom
The chief executive of the Financial Services Authority has written to newspaper editors defending recommendations that urge companies to record conversations between executives and journalists.
Hector Sants’ defence of the proposals could set the City watchdog on a collision course with the media over press freedom. Editors have condemned the proposals as “disproportionate and unacceptable”.
In a letter to four editors, including Lionel Barber of the Financial Times, Sants said that the FSA is acting to ensure market-sensitive information is released through official channels as part of its responsibility to prevent insider trading.
The recommendations were published last month by the FSA’s markets division, which is responsible for policing companies listed in London, following an investigation into how details of several corporate deals were leaked to the media in the past two years. They are intended to ensure senior executives establish “a much stricter culture that firmly and actively discourages leaks” by controlling relations with the media more tightly.
In a response to a letter from Barber and other editors, including Guardian editor-in-chief Alan Rusbridger, Sants said: “I’m afraid I cannot see how reminding firms of the importance of seeking to minimise the opportunity for employees to commit market abuse is constraining press freedom.”
Sants concedes that the FSA had advised companies to record or take notes of discussions between employees and journalists, but pointed out that would not apply to every conversation.
“That is desirable only if the enquiry from the media potentially relates to inside information,” he added. He also said the FSA had advised listed companies that doing so was “best practice” but that it was not mandatory.
He stressed that no new measures are planned. “These rules and laws are already in place,” he wrote. “We are reminding listed firms of the importance of adhering to the current standards”.
The measures, which include a suggestion that all contact between journalists and company employees are approved in advance by corporate affairs or PR executives, have been condemned by editors, including Rusbridger and James Harding, editor of the Times. They wrote to Hands last week along with Barber and David Schlessinger, editor-in-chief of Reuters, telling the FSA to take them off the table.
The editors warned that they “reflect a wilful misunderstanding of the relationship between the City and the press”.
They told Sants a strong media is essential if markets are to function properly and that policing journalists more closely is likely to lead to the publication of “unconfirmed reports and rumours”.
They pointed out: “Journalists and the media play a key role in maintaining a level playing field in the market by unearthing and disseminating information – including material that companies seek to hide, obscure or spin. More public scrutiny of their transactions is required, not less”.
Sants insists that leaks to the press can cause: “Significant investor detriment” and “undermines market confidence”. The FSA believes insiders at some firms are strategically leaking information. It said last month it had evidence that telephone calls had taken place between journalists and executives before a number of high-profile leaks in recent years.
The FSA argues it is obliged to ensure that all information likely to effect the share prices of quoted companies is disseminated at the same time in order prevent inside information being obtained for personal financial gain.
Newspapers argue they help to ensure investors and the public are in possession of the same information as privileged insiders by ensuring the free flow of information.
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