The chilling effect of the Financial Services Authority

The Financial Services Authority is the statutory body which regulates deposit-taking, insurance and investment business in the UK. In addition, the FSA is responsible for tackling market abuse, promoting public understanding of the financial system and reducing white collar crime. It draws its statutory powers and responsibilities from the Financial Services & Markets Act 2000 and assumed its full responsibilities on 1 December 2001.

The FSA wields power against not only registered City professionals but any individual or corporation which breaches its Code of Market Conduct. This would include journalists and media organisations, which may unwittingly fall foul of a new civil offence of "market abuse". The financial press has raised concerns that the new "market abuse" offence will chill financial reporting for fear of incurring unlimited fines following any intervention from the FSA.

"Market abuse" (supplementing the crimes of insider-dealing and market manipulation) is given a wide definition in the Code of Market Conduct as behaviour in relation to a qualifying investment which involves the misuse of information, and/or is likely to give a false or misleading impression and/or is likely to distort the market. "Qualifying investments" include shares, warrants and options. The offence can be committed without knowledge, intent or recklessness on the part of the alleged offender.

As the offence of "market abuse" is a civil offence, it has a lower standard of proof. A decision on the balance of probability may come more easily to the FSA than a verdict beyond all reasonable doubt in complex financial cases.

Some say the rules hinder the flow of commercial information to shareholders through analysts and the media. Others hint at increased instability in the markets at a time when many companies were increasingly disseminating information potentially caught by the rules widely to analysts and journalists in person and through the internet.

The uncertain remit of the offence and the heavy penalties facing offenders are a cause for concern, both for responsible financial journalists and more unscrupulous ‘City pages’ journalists tempted by the thought of profiting from their own tip columns. The media should not fear the FSA but, then again, neither should it be a testing ground as it seeks to establish the bounds of its powers and authorities.

Benjamin Beabey is a solicitor in the media team of Farrer & Co

 

 

 

 

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