The FSA is right to suggest that strategic leaks to the media regarding sensitive insider information can be damaging to market confidence as well as the interests of shareholders and investors.
However, last week’s statement of intent from the regulator regarding the interaction between regulated firms and the media is an unnecessarily heavy-handed reaction.
The FSA recommends that non-media staff at listed firms should be banned from responding to or discussing with journalists details about the firm that could be considered inside information.
In such circumstances, all correspondence should be directed through the press office of the firm or their compliance/legal function if there is no media relations team.
The FSA says it may strengthen its rules if it does not see an improvement in this area.
Of course, the FSA must be on guard against the media being used as a tool for market abuse but the recommendations would impede a great deal of legitimate news gathering.
Journalists build up and rely on a number of important senior sources at firms, with and without the knowledge of their press office, and these relationships are the basis of a huge number of exclusive stories broken in the media.
On many occasions, it may be a grey area as to whether the information being discussed is indeed “inside information” and it is rarely as simple as a phone call being made one minute and a story appearing the next. After reading the FSA’s recommendations, some important sources of information may think twice about their relationship with the media.
As it happens, any attempt to sever the traditional link between journalists and their sources is likely to be pretty futile but if the FSA did manage to get its way, a very unpleasant climate would be created.
In its desire to crack down on market abuse through the media, the FSA risks damaging the important role that journalists play in holding the industry to account.
A dystopian world where all media correspondence is directed through company press offices would lead to a lack of scrutiny, transparency and accountability that would be damaging to the investors the FSA says it is looking to protect. Rather than serving the interests of shareholders and investors, a media clampdown of the sort suggested by the FSA would do far more harm than good.