FSA urges companies to tighten up procedures in takeover deals

By Sean Farrell,Financial Editor
Sunday 23 October 2011 00:17

The Financial Services Authority has warned investment banks, and other firms involved in deals, to tighten up measures to stop leaks of inside information about takeovers.

The City watchdog said yesterday that firms from banks to printers had made progress in the past year but that there were still too many people involved in deals and processes remained sloppy.

Companies have complained that it is difficult to limit the number of people involved in deals because secretaries need to prepare papers, specialists have to be brought in, and information technology staff require access to computer systems. Pressure from clients for quick results requires lots of people and limiting those with access to information is costly, they added.

But the FSA said the argument about costs was "not compelling". Many firms are also reluctant on cost grounds to carry out leak inquiries unless there is specific evidence linking them to the release of information. The FSA said it was the industry's responsibility to have processes triggering leak inquiries and that it was not its job to decide when an inquiry was needed.

Corporate finance departments also need to think carefully before employing temporary staff, particularly in control rooms, the watchdog said.

Alexander Justham, the FSA's director of markets, said: "It is important that the FSA continues to engage in partnership with the industry on these matters. In particular, I would like to see more efforts to crack down on the length of insider lists and to see firms giving greater focus to the importance of leak inquiries."

The FSA wants to clamp down on inside information leaking out before deals are announced. It said in April that 29 per cent of UK deals in 2007 experienced "informed price movements" in the two days before the official announcement. It said not all the movements were down to insider trading but that the figure was too high and was not reducing as the watchdog wanted it to.

The regulator published a list of six "principles of good practice" yesterday for companies dealing with sensitive information. It told firms to boost training for staff, limit the number of insiders on transactions, force employees to tidy their desks and tighten controls such as secure disposal of waste materials.

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