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European Voice article (3-9 October 2002)

Market abuse directive must be restrained

The future of financial journalism is at stake.


By Francisco Pinto Balsemão

The new committee of European securities regulators (CESR), set up under the Lamfalussy Process to fill in the detail of broader financial services Directives, may have got carried away in one of its first public outings: it proposed layers of detail on financial journalism which go well beyond the intentions of the EU institutions to regulate insider trading and other market abuses. To this extent, MEPs’ reluctance to agree to this process earlier this year has proven justified.

We in the European Publishers Council ~EPC), a high-level group of chairmen and CEOs of European media corporations, have been concerned, alongside Europe’s leading financial editors and media
*, about two aspects of this proposed directive on insider trading and market manipulation.

Firstly, we have successfully fought —supported by the European Parliament - to ensure that journalists cannot be held criminally liable for innocent mistakes under the definition of market manipulation. Secondly — and herein lies our problem — we have been working to ensure that editorial policy on fair presentation and
disclosure of conflicts of interest is not subjected to new EU regulation laid down by CESR, but rather left to long-standing, effective self-regulatory codes of practice within the industry.

Whilst the common position, adopted in May, answered our concerns on innocent misreporting, on fair presentation and disclosure of interests, it does not explicitly restrict Article 6(5) to financial analysts.
CESR has seized on this, releasing a paper effectively proposing a detailed new regulatory regime for financial journalism.

The proposals would sweep away the self-regulatory regimes that have been developed over many years and which continue to deliver high standards of financial journalism.

It’s important to remember that the combination of research with investment banking, that has fuelled the abuse in the financial services sector, just does not exist in financial journalism. Perhaps the new CESR document will convince MEPs that if journalists are not specifically excluded from the remit of this article they will be unnecessarily regulated. MEPs have a final chance during the second reading this month to address this problem.

The Commission has said that the primary target of Article 6(5) is financial analysts and market traders. During the Parliament’s first reading, rapporteur Robert Goebbels also insisted that this article would not cover media reporting, and that there was no need therefore to introduce an amendment to exclude journalism.

This threat to financial journalism from CESR, perhaps over eager to prove itself, is extremely worrying for all of us in the media industry — publishers and reporters alike. It is extraordinary that CESR did not contact the media, or the media’s regulatory organisations anywhere in the EU, to understand how financial journalism operates or to find out which media governance schemes are already in place.

We have asked MEPs to propose an amendment to Article 6(5) which would read: “This article shall not apply to journalists when they act in their professional capacity.” We share the view of member states, the Commission, the Parliament and journalists’ associations that journalists should indeed be punished where they knowingly disseminate false information for the purpose of misleading markets

However, our main concern is that the transparency of markets will suffer as a result of this legislation as it currently stands. Cumbersome and intrusive rules on fair representation and disclosure would slow down the speed, and reduce the quality, of information from news providers to markets. Journalists will decide to exclude information rather than risk criminal sanctions.

This legislation would impact on the public as well as journalists. It is in all of our interests to have fair and transparent reporting, but issues of conflict of interest are already covered in employment contracts as well as through published self-regulatory codes which exist in member states.

Financial reporters are currently the unfortunate victims of a loop-hole which could so easily be closed. The future of financial reporting, and the credibility of CESR are at stake. The Parliament has this last chance to prevent the adoption of an unworkable, disproportionate, and unin­tended regulation of financial journalism.

• Francisco Pinto Balsemao is chairman of the EPC, CEO of Grupo Impresa in Portugal and a former prime minister of Portugal


* Including: ENPA (European Newspaper Publishers Association), FAEP (European Federation of Magazine Publishers) and other media and journalists’ unions.