Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

FCA Clifford Chance Report Part II: The Menace of Selective Briefing

Yesterday, I blogged about Clifford Chance report on the UK FCA (Financial Conduct Authority) from the viewpoint of regulatory capture. Today, I turn to the issue of the selective pre-briefing provided by the FCA to journalists and industry bodies. Of course, the FCA is not alone in doing this: government agencies around the world indulge in this anachronistic practice.

In the pre internet era, government agencies had to rely on the mass media to disseminate their policies and decisions. It was therefore necessary for them to cultivate the mass media to ensure that their messages got the desired degree of coverage. One of the ways of doing this was to provide privileged access to select journalists in return for enhanced coverage.

This practice is now completely anachronistic. The internet has transformed the entire paradigm of mass communication. In the old days, we had a push channel in which the big media outlets pushed their content out to consumers. The internet is a pull channel in which consumers pull whatever content they want. For example, I subscribe to the RSS/Atom feeds of several regulators around the world. I also subscribe to the feeds of several blogs which comment on regulatory developments world wide. My feed reader pulls all this content to my computer and mobile devices and provides me instant excess to these messages without the intermediation of any big media gatekeepers.

In this context, the entire practice of pre-briefing is anachronistic. Worse, it is inimical to the modern democratic ideals of equal and fair access to all. The question then is why does it survive at all. I am convinced that what might have had some legitimate function decades ago has now been corrupted into something more nefarious. Regulators now use privileged access to suborn the mass media and to get favourable coverage of their decisions. Journalists have to think twice before they write something critical about the regulator who may simply cut off their privileged access.

It is high time we put an end to this diabolical practice. What I would like to see is the following:

  1. A regulator could meet a journalist one-on-one, but the entire transcript of the interview must then be published on the regulator’s website and the interview must be embargoed until such publication.
  2. A regulator could hold press conferences or grant live interviews to the visual media, but such events must be web cast live on the regulator’s website and transcripts must be published soon after.
  3. The regulators should not differentiate between (a) journalists from the mainstream media and (b) representatives of alternate media (including bloggers).
  4. Regulator web sites and feeds must be more friendly to the general public. For example, the item description field in an RSS feed or the item content field in an Atom feed should contain enough information for a casual reader to decide whether it is worth reading in full. Regulatory announcements must provide enough background to enable the general public to understand them.

Any breach of (1) or (2) above should be regarded as a selective disclosure that attracts the same penalties as selective disclosure by an officer of a listed company.

What I also find very disturbing is the practice of the regulator holding briefing sessions with select group of regulated entities or their associations or lobby groups. In my view, while the regulator does need to hold confidential discussions with regulated entities on a one-on-one basis, any meeting attended by more than one entity cannot by definition be about confidential supervisory concerns. The requirement of publication of transcripts or live web casts should apply in these cases as well. In the FCA case, it seems to be taken for granted by all (including the Clifford Chance report) that the FCA needs to have confidential discussions with the Association of British Insurers (ABI). I think this view is mistaken, particularly when it is not considered necessary to hold a similar discussion with the affected policy holders.

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