City PROs and journalists are reeling following last week's warning
by the Financial Services Authority over the implications of its new
market abuse powers. Are their concerns justified? Holly Williams
City watchdog the Financial Services Authority gave financial PROs an
unwelcome wake-up call last week with tales of its swingeing powers and
unlimited fines ahead of the new market abuse regulatory regime.
While the Square Mile has been aware of the FSA's upcoming Code of
Market Conduct for some time, the new standards are only a month from
coming into force and, for some, the penny is only now beginning to drop
that there will be far-reaching implications.
As the ramifications dawn on the PR industry, the FSA and its boss Sir
Howard Davies are coming under fire from all angles. City PROs are
concerned the code will change a key aspect of the way they work -
namely ending the spoon-fed exclusives widely known as the 'Friday night
Likewise, journalists fear the FSA's rules will stifle press freedom and
take away a crucial source of business news.
Meanwhile, the Treasury Select Committee is challenging the FSA for not
making rules strict enough for the selective dissemination of company
The Observer business editor Frank Kane is so outraged with the proposed
rules, that at last week's PRWeek Forum he pledged a campaign against
the code: 'If a source briefs you and you get the story before the rest,
that's simply good journalism. But the FSA seems to think that is
misleading the market,' says Kane.
'Newspapers have a role to play in getting as much information out there
in the public domain as possible to better inform investors and the
market as a whole,' he adds.
For PROs, the implications of the code are worrying - in particular for
those unaware of its full potential.
The market abuse regulations, effective from 1 December, will cover the
misuse of information, based on buying or selling stocks according to
information not generally available; creating a false or misleading
impression, such as posting messages on internet bulletin boards; and
distorting the market, by manipulating investment market prices.
Some industry sources say the FSA's test for what constitutes market
abuse is somewhat vague - the body only has to prove that a reasonable
person believes market abuse could have taken place - and there is, as
yet, no sliding scale of fines.
Importantly, the code also applies to everyone - and individuals will be
Holborn PR chief executive David Bick says: 'The code applies directly
to individuals and I don't think company directors realise the
implications of this. It doesn't seem that there's any democratic
sanction in all of this and it appears to be entirely at the discretion
of the FSA.'
FSA spokesman Kate Burns says those who feel they have been wrongly
accused of market abuse by its Regulatory Decisions Committee can appeal
to the Financial Services and Markets Tribunal, which is run by the Lord
Chancellor's department. She adds there will be a dedicated market abuse
helpline launching on 3 December.
On the grey area of fines, she says: 'It's hard to be specific when
every case is different - we won't just pick numbers out of the air,
there is a fining policy in our enforcement manual.'
But there is growing concern that, without any published graduation of
fines, the FSA will come down hard on early cases as a deterrent.
Former head of surveillance at the London Stock Exchange, Mike Feltham,
says financial PR firms will have to take cautionary measures: 'If they
do move the markets, and that's what financial PR essentially does, and
someone is disadvantaged by this, then they could be in trouble. They
will need to have inside their decision-making process, some sort of
audit mechanism as a defence.'
Suggestions have been made that agencies may need to employ compliance
officers and record all telephone calls. Although this may come as a
shock to some City consultancies, there are those that welcome the rules
and maintain any agency worth its salt will be fully aware of the
upcoming regime and already employ best practice techniques to meet the
There is a school of thought among senior City PROs that if the code
means further transparency, an even playing field for investors and
stamping out leaks to get favourable coverage, then it's good news.
Many of the top ten City firms know they will be in the FSA's spotlight
from next month and are therefore unwilling to draw attention to
themselves with outspoken criticism.
But the claims made last week that financial PROs have ignored the code,
are strongly refuted by the industry body.
The IPR says it issued advice to members in July and is re-issuing
advice in light of the FSA's warning.
According to IPR corporate and financial group chairman Richard Pollen,
'not much has changed and, as in the past, practitioners will make it
their business to adopt any necessary modifications.'
He comments: 'The Friday night drop is often raised as a specific case
when sharp practice is discussed; best practice in this - briefing at
least two papers and two wire services - has been clear and consistent
Whether the code is welcomed or dreaded, what is clear is that there is
confusion over the specifics of the regulations, what will actually
constitute market abuse and how they will be enforced.
It would seem that both the FSA and PR industry will be entering
uncharted territory when the market abuse code comes into force.