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UK's FSA tells banks to crack down on M&A leaks

Published 09/24/2010, 09:13 AM
Updated 09/24/2010, 09:16 AM

By Quentin Webb

LONDON, Sept 24 (Reuters) - Britain's markets watchdog told investment banks to adopt "a much stricter culture" to prevent leaks to journalists about takeovers and other deals, and said it might impose new rules if nothing improves in a year.

The Financial Services Authority (FSA) said three years of investigations had found contact between banks and journalists was "generally poorly controlled" and media leaks often followed telephone conversations with senior deal insiders.

It said leaks before a deal became public were harmful to the market.

"Strategic leaks -- designed to be advantageous to a party to a transaction --- are particularly damaging to market confidence and do not serve shareholders' or investors' wider interests," the watchdog said in a newsletter.

It recommended banks adopt "detailed and robust" policies for investigating leaks and interacting with the media.

Appropriate policies would ensure all enquiries from journalists went first to a bank's media-relations team, the FSA said, and in most cases potentially involving inside information would be solely handled by that team.

It said telephone calls with media should be taped, or should involve media-relations staff who would take notes, and any email exchange should be copied to the bank's press office.

Banks should train staff on dealing with the media, remind them regularly of their responsibilities, and establish a culture of reporting potential leaks to senior staff.

Disciplinary policy should also reflect a "robust stance" on leaks, the FSA said.

Many media outlets take pride in breaking news of pending takeovers and competition in this area is intense.

The FSA does not regulate other firms typically involved in mergers and acquisitions (M&A) and other kinds of market-moving deals, such as law firms, public relations advisers, accountants, investors and document printers.

But it said these firms could consider adopting some of the same approaches to avoid committing market abuse and sustaining "signficant reputational damage".

The FSA said it had conducted "a number of intensive enquiries" between 2008 and 2010, and interviewed deal insiders, but did not give any details.

In 2008 it investigated whether a steep fall in shares of HBOS, now part of Lloyds Banking Group, had been caused partly by misleading rumours of funding difficulties.

It later said it had not found evidence the rumours were part of a "concerted attempt by individuals to profit" from the stock's falling. The FSA's recommendations were published in its Market Watch newsletter, released on Thursday: http://www.fsa.gov.uk/pubs/newsletters/mw_newsletter37.pdf (Reporting by Quentin Webb; editing by Michael Shields)

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