Tucked away in the September edition of the FSA’s ’Market Watch’ newsletter were some pretty startling proposals concerning the regulator’s intention to monitor communications between regulated companies and the media.
The FSA recommends that all media enquiries made of a regulated company must be directed to the firm’s media relations personnel. They should then assess the request to “decide if it potentially relates to inside information”, urging them to “err on the side of caution”. Conversations with the press should be taped or recorded by hand by someone from the company’s press office.
The FSA goes so far as to say 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 short, the FSA is submitting the media’s contact with regulated businesses to a rigorous screening process.
Leaks of inside information have the potential to undermine market integrity, and a non-level playing field is obviously bad for business. There have been examples of huge movements in share prices before takeover announcements, and on occasion takeovers have been revealed by a business correspondent ahead of a formal statement.
Equally, though, the media’s role in exposing corruption, misinformation and corporate spin is a vital part of investigative financial journalism.
The proposals do not recognise explicitly the public interest that disclosure to the media may have. In effect, they require all requests to be made to the firm first, which is probably then under a regulatory duty to send these to the FSA for vetting. Nor are they tailored to the extent of the damage that may be done by unauthorised disclosure.
By contrast, employment law has established codified protection for whistleblowers in the Public Interest Disclosure Act 1998. The act sets out relevant factors to determine whether the disclosure is in the public interest. It also sets out considerations relevant to the reasonableness of making the disclosure, including the identity of the person to whom the disclosure is made and the seriousness of the wrongdoing being revealed. For example, it contemplates that it may be reasonable to disclose to the “world at large” exceptionally serious conduct.
What is also odd about the proposals is that they are pulling in the opposite direction to recent case law at the European Court of Human Rights on maintaining the confidentiality of financial journalists’ sources. The Strasbourg court recently held that domestic courts were wrong to have ordered the Financial Times (FT) and other newspapers to reveal their sources of leaked documents relating to a possible corporate takeover - freedom of speech rights trumped speculation about the possible motives of the discloser.
Of course, the FSA’s new rules will not prevent whistleblowers who are determined to make revelations and then the question will simply be about the confidentiality of the source.
The ’best practice recommendations’ in the newsletter are not formal FSA guidance, but it is clear that firms will be expected to comply with them.
Perhaps the most worrying implication is that the press cannot be trusted. At the very least the media should have been consulted about these views. A recent letter in response from the editors of the FT, The Guardian, The Times and Thomson Reuters makes it clear they will not take this lying down.
FSA chief executive Hector Sants was unimpressed, replying: “I’m afraid I can’t see how it’s constraining press freedom.”