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The Financial Services Authority (FSA) will consult on a proposal that financial institutions in receipt of liquidity support from a central bank will have a legitimate interest for delaying the public disclosure of such support.

Today's proposal is the next update on this issue, following the joint Bank of England, Treasury and FSA (Tripartite Authorities) consultation document Financial stability and depositor protection: strengthening the framework PDF published in January 2008 and the consultation paper, Strengthening financial stability and depositor protection published on 1 July 2008. The details of the proposal are contained within the FSA’s CP08/13 Consultation Paper published today.

Under the EU's Market Abuse Directive from which the disclosure rules are derived, firms admitted to trading on a regulated market are obliged to publicly disclose inside information to the market. The directive allows, in certain specific circumstances, the disclosure of inside information to be delayed. The FSA proposals make clear that a financial institution in receipt of liquidity support from a central bank may have a legitimate interest to delay the disclosure of such support. The delay would be justified on the grounds that immediate disclosure could, by leading to a loss of confidence among consumers, exacerbate the existing liquidity problems and cause a threat to the solvency of the financial institution.

It should be noted that the proposal would not grant a financial institution an unconditional or indefinite delay to disclose the receipt of liquidity support. Under certain circumstances, immediate disclosure would still be required. The consultation will close on 30 September 2008.

Notes for editors

1. Consultation paper CP08/13.
2. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
3. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.