The FSA has published the findings from its three-year enquiry into leaks of inside information by regulated firms and issuers in its latest Market Watch newsletter. The regulator is clearly frustrated by the amount of leaking of price sensitive information that is still taking place.
The FSA has made clear that unless there is a reduction in the levels of leaking, and changes are made to how companies handle the media, it will "take action where… unacceptable practices have occurred" and may change its rules to strengthen obligations in this area.
The FSA's approach
The FSA is concerned that the leaking of inside information can (amongst other things) be used to facilitate insider trading; prevent companies from legitimately delaying disclosure to the detriment of shareholders and investors; and damage market confidence through abnormal price movements ahead of transaction announcements.
The FSA has steadily become more frustrated with the number of leaks, and with its investigation showing that no improvements have been made in the last few years, it can be expected to clamp down.
This may well be the FSA’s 'final warning' that the leaking of inside information will no longer be tolerated. If issuers and other insiders do not now start to take notice, the FSA will start to take action.
If inside information exists, issuers should communicate the information to the market via an RIS announcement, and not discuss the information with journalists. If inside information is leaked to the media, those leaking it may be committing civil market abuse under the Financial Services and Markets Act 2000 and/or criminal insider dealing under section 52 of the Criminal Justice Act 1993.
Prior to considering whether to change its rules, the FSA will give companies a chance to improve their internal procedures and their management of leaks. Its newsletter sets out recommendations for media policies, the handling of leaks, communications with and training of staff and establishing a strong reporting culture.
In order to avoid public criticism from the FSA, an investigation leaks policies and ensure that they are in line with the FSA's recommendations. The recommendations from the FSA are:
- Put a robust and detailed media policy in place. This should be aligned with policies concerning confidential information and inside information
- Senior management should not respond to enquiries from the media or initiate contact with the media. Any media enquiries should be directed to the media relations team to decide if the enquiry potentially relates to inside information. The media relations team should err on the side of caution
- If an enquiry does relate to inside information, the media relations team should determine whether insiders need to be involved. If insiders do need to be involved, the media relations team should lead any communications, and any conversations should take place on a recorded telephone line
- If there are concerns that inside information has already been leaked, these concerns should be escalated and a consideration given to whether an announcement is required
- Put a robust and detailed leak policy in place
- If a leak has taken place, issuers are encouraged to take the lead and request that all regulated and unregulated firms that work with them take part in a detailed enquiry. The relevant authorities should be informed and the findings of the enquiry reported to senior management. Where the enquiry identifies weaknesses, these weaknesses should be addressed
- Staff should receive regular and structured training on the media and leak handling policies