Financial Conduct Authority
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Update on the thematic review of controls over inside information
The Financial Services Authority (FSA) today publishes Market Watch 27, an update of the thematic review of controls over inside information, following the publication of Market Watch 21 in July last year.
The update includes a set of Principles of Good Practice (“The Principles”) for the handling of inside information. The Principles were drawn up by industry practitioners representing different areas involved in M&A activity, such as issuers, corporate finance houses, lawyers, accountants, public relations firms and financial printers. The Principles, which highlight the importance of restricting access to price sensitive information, are voluntary to adopt, broad based and largely focused on the areas identified as requiring the most attention, as set out in Market Watch 21. Whilst the Principles are aimed at the unregulated community, aspects of them could also provide assistance to other market participants.
The areas highlighted in Market Watch 21 as requiring most attention to help mitigate the risk of leakage of inside information include the need for greater vigilance overall to restrict the number of insiders, proactiveness when leaks occur and the need to have robust IT controls. Work, in partnership with the industry, to reduce the leakage of price sensitive information relating to M&A activity therefore improving market cleanliness is a core part of the FSA's strategy for tackling market abuse. Insider dealing is a criminal offence which the FSA will prosecute vigorously.
Market Watch 27 also provides a detailed update on the follow up work that the FSA has undertaken with FSA regulated firms and contains examples where individual firms strengthened their controls. It also reports on industry dialogue on two important topics: how to increase the focus at firms on the need to properly consider when to undertake internal leak enquiries, and whether more can be done to reduce the number of insiders on deals.
Alexander Justham, FSA director of Markets, said:
“As a direct result of Market Watch 21 many firms have made positive changes to strengthen their controls. I am extremely pleased to observe the heightened industry awareness and dialogue in relation to the risk of leakage of information on M&A deals. It is important that the FSA continues to engage in partnership with the industry on these matters; in particular, I would like to see more efforts to crack down on the length of insider lists and to see firms giving greater focus to the importance of leak enquiries. I want to thank the industry practitioners who worked with us to draw up the Principles of Good Practice, which will be a vital element of our endeavours to combat insider dealing.”
Richard Lambert, director-general of the CBI, said:
“It is vital that investors have faith and confidence in honest and open capital markets. Insider trading destroys trust and these principles of good practice will help ensure transparency and fairness in the markets.”
Adam Kinsley, director of Regulation at the London Stock Exchange, said:
"We support the FSA and the industry bodies who drafted this guidance, and share their objective to ensure that UK markets continue to be regarded as well-regulated and clean. These principles published by the FSA today provide helpful guidance to anyone who comes into contact with inside information. They will help ensure the UK remains a world-leading financial centre with high standards and good practices."
David Gallagher, chairman of the PRCA, said:
"These are eminently sensible principles which we fully endorse. That the principles are non-prescriptive and voluntary puts the onus squarely on practitioners to continue to keep this area of their business under review. Whilst the examples in the annex apply to a number of different types of business, they are a useful reference point."
Notes for editors
- Market Watch 21 was published in July 2007.
- The following organisations formed the working party alongside the FSA: the Confederation of British Industry (CBI), the Public Relations Consultants Association (PRCA), the London Investment Banking Association (LIBA), Imprima Group, Bowne International, RR Donnelley, Merrill Corporation, the Institute of Chartered Accountants in England and Wales (ICAEW), the City of London Law Society (CLLS).
- 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.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.