The Market Abuse Directive

In the wake of the City Slickers affair, few would argue with the need for effective measures to ensure that journalists declare financial interests and do not seek to profit from the advice they give, writes David Attfield.

Currently, these measures are provided through the Editor’s Code of Practice. The relevant provisions are in Clause 14, under which journalists:

lmust not use for their own profit financial information they receive in advance of its general publication, nor should they pass such information to others;  lmust not write about shares or securities in whose performance they or their close families have a significant financial interest without disclosing that interest to the editor or financial editor; and lmust not deal in shares or securities about which they have written recently or about which they intend to write in the near future.

The Market Abuse Directive (abbreviated, appropriately in the eyes of some, to MAD), which is currently being considered by the European Parliament, risks adding a further layer of regulation, this time carrying criminal sanctions.

MAD is intended to form part of the regulatory framework for the long-sought single market in financial services. Its basic objective is laudable enough – public confidence in the integrity of financial markets is vital for economic prosperity. But it is its potential application to financial journalism which is causing concern.

Under earlier drafts, journalists would have been exposed to criminal sanctions for reporting misleading information which led to moves in the markets. Wide-ranging safeguards have now been incorporated, following a campaign by media organisations. It also now appears that guidance will be issued to the effect that, in applying MAD, regard must be had to existing self-regulatory schemes, such as the Editor’s Code, and to rules of free speech. However, the risk remains that reporting rumour could amount to an offence if it were regarded as market manipulation. Also of concern is a wide-ranging obligation on those disseminating financial information to disclose their interests. Failure to do so would be a criminal offence.

Those in the media who are calling for an exemption for journalism argue that to include journalism is disproportionate. This seems a fair point — after all, the current system of self-regulation has not been discredited. Even if journalism is not exempted, the media can take some comfort from the progress being made to temper what once appeared to be very draconian proposals.

 

David Attfield is a solicitor in the media group of Lovells

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