The regulators are getting themselves in a knot over the flow of information around the City and amo...
The regulators are getting themselves in a knot over the flow of information around the City and among investors, both institutional and retail. In the past week, Howard Davies at the Financial Services Authority has been flying the flag for utter transparency and equality of access to price sensitive information for all. He has warned that companies who hold cosy briefings for selected journalists and analysts will be in for heavy fines when he gets new powers in about a year's time.
The intention behind these efforts is laudable. As far as is reasonably possible, all players in the market should have the same chance of making money - and information and data are the tools needed to allow them to do it. The interest in a level playing field is not new - for more than 30 years there have been codes or laws of one sort or another designed to promote fair play.
But there is a fresh impetus towards protecting especially the retail or private investor, perhaps because there are so many more of them. Starting with Sid and the privatisations of the 1980s, the UK is becoming a nation of share-owners, although not yet along US lines. From the Government's point of view, this is a very good thing.
Shareholders are stakeholders in the most basic sense - they buy parts of the companies that drive the economy, and they are therefore generally interested, active members of society. Most importantly, their holdings may even fund their healthcare or retirement costs and take some burden off the state, while contributing taxes all along the way. Perfect!
But they are also voters, and tend, when things go wrong, to call loudly and rudely for "something to be done". Then the legislators get it in the neck and have to react. It is unfashionable to say that many investors get burned because they are greedy and incompetent, rather than because the market is unfair.
There is already plenty of legislation requiring proper and timely disclosure of price sensitive information to all interested market players. The deterrents are stacking up, but better practice is not, and the reason is that regulators are producing more and more laws that they cannot realistically police. This is a zero-sum game that promotes cynicism and benefits no-one.
And what precisely is price sensitive information? A company cleaner relaying gossip could be just as dangerous to confidentiality as an exclusively briefed analyst. The more information flows are controlled, the more valuable the bits that escape.
It is impossible to legislate against this kind of "information transmission". People just get better at lying with a straight face, and the authorities stand open to accusations of endemic bad faith if they continually challenge people. The most diligent companies will certainly simply clam up, afraid of releasing anything that could remotely be construed as a special briefing.
So again, the intention of providing the most open marketplace, and of protecting the smaller investor, is praiseworthy. But perhaps the FSA should devote some energy to the other end of the process - promoting early financial education. Not just explaining how to write a cheque or the intricacies of an Isa, but to beware buying from anyone who is trying to sell you something.
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