Howard Davies, Chairman of the Financial Services Authority used a
conference in March this year to set out the FSA's approach in
practice to the policing of the market abuse regime, which came
into force in December 2001, and its view as to what impact, if
any, the regime should have for the handling of price-sensitive
information under the longstanding Listing Rules. Both of these
areas have been causing concern for companies and the market
generally. Has Mr Davies alleviated these concerns?
Policing the market abuse regime
Disquiet has been expressed about the powers
available to the FSA to impose penalties for market abuse,
particularly given uncertainties as to what activities will or will
not constitute market abuse (leading some companies to adopt an
extremely cautious approach to their activities until there is
established precedent and practice).
Mr Davies has tried to assuage any fears that the
full powers of the FSA will be brought into use for every suspected
case of market abuse. He said that the FSA will aim to "prioritise
rigorously, investigating only those cases which are material and
significant". The response of the FSA will also be "proportionate".
The FSA is saying that it will not chase every small, insignificant
case but instead look to channel its resources into investigating
cases of market abuse that pose a threat to confidence in the UK's
financial markets. Mr Davies expanded on this approach further by
saying that the FSA is "not interested in pursuing technical or
inadvertent infringements" of the rules.
In determining whether or not to pursue a case the
FSA will ask itself three main questions:
- has there been an impact on market confidence or have consumers
actually or potentially lost money?
- will prompt action by the FSA prevent further damage?
- will action by the FSA deter the behaviour in question in the
Whilst the words of Mr Davies should be of some comfort, without
something more specific on which companies can rely, and which
binds the FSA, it is difficult to see in the short term at least
companies and advisers relaxing their cautious stance. The market
needs to see how the FSA operates over a reasonable period of time
before any view can be taken as to where in fact the FSA will draw
the line. Of course what happens in practice may ultimately afford
companies little comfort for the future as there will always be the
possibility that the FSA's approach could change, for example in
response to a major scandal.
Handling of price-sensitive information
Whilst the FSMA did not change the general
obligations (contained in Chapter 9 of the Listing Rules) on listed
companies regarding the disclosure of price-sensitive information,
there is some overlap between these obligations and the market
abuse regime. This overlap, when combined with the more rigorous
sanctions now available to the FSA (in its capacity as the UK
Listing Authority) for a breach of the Listing Rules (for example
the power to impose fines), has caused some companies to change
their disclosure practices to try and stay within what they believe
to be the rules. Mr Davies commented that some companies are now
being advised to say as little as possible about future prospects
whilst, at the other extreme, others are being told that they
should consider making public statements about prospective plans
and confidential discussions (despite the specific carve out in the
Listing Rules regarding the disclosure of impending developments or
matters in the course of negotiation). Clearly Mr Davies thought
that there has been some over reaction by companies and their
advisers, referring in particular to some "high octane nonsense"
emanating from lawyers.
Whilst noting that a number of companies had
overhauled their practices regarding the disclosure of information
as a result of the new powers available to the FSA, Mr Davies said
that the FSA had identified a number of "very sloppy practices" in
the market regarding compliance with the listing and continuing
obligations regime. A number of cases are being investigated which
should act as a warning to all companies.
Trying to allay any fears, Mr Davies referred to
the fact that there had been no changes to the Listing Rules in
this area and pointed out that behaviour conforming to various
disclosure obligations under the Listing Rules was the subject of a
specific safe harbour under the market abuse regime. In Mr Davies'
view the general principle is clear. A company in considering how
to deal with price-sensitive information "needs to pay prime
attention to the principle of equal access for all investors" to
such information and it if does so it is "unlikely to go far
But does this really get companies and their
advisers much further? Mr Davies himself said that no one can, or
should want to, construct a rule book dealing with every possible
scenario regarding the disclosure of price-sensitive information
and absolute clarity is not available. For companies in doubt the
FSA are suggesting they either consult their advisers or seek
informal advice from the FSA (which will be non binding).
It is suggested that very little, if anything, in
Mr Davies' comments will cause companies and their advisers to
change their approach. Until some clear practices develop and the
market has seen over time how the FSA deals with the issue of
disclosure and the exercise of its new powers, it should come as no
surprise to the FSA if companies and their advisers, in an effort
to keep within the rules (which by definition are not clear),
remain cautious, even if this has the effect of, to use Mr Davies'
words, "dampening the legitimate flow of information, which is the
lifeblood of open and competitive financial markets".
For further information please contact:
Nick Callister Radcliffe
Phone: +44 (0)20 7367 2394
Phone: +44 (0)20 7367 3566
Phone: +44 (0)20 7367 3145