Disclosure of inside information – FCA Primary Market Bulletin on leaking inside information during M&A

The Financial Conduct Authority (FCA) has published a Primary Market Bulletin (PMB 54) which focuses on strategic leaks during M&A transactions and the fact that a leak may involve the unlawful disclosure of inside information.

The FCA says that it has seen an increase in situations where material information on live M&A transactions appears to have been deliberately leaked to the press. Examples of the information leaked include details of discussions between the board of a target company and a potential bidder following an approach about a possible takeover offer, or where the target board has rejected an approach but an increased offer is likely.

It notes that the leak of inside information may be inadvertent, by hinting at market sensitive information even if specific details are not mentioned, or strategic, where the information is deliberately given to the press by individuals at an issuer or its advisers. The FCA is concerned that there is a culture among market participants that strategically leaking inside information to the media is acceptable during a transaction.

The FCA reminds parties that the information being leaked is often inside information under the UK Market Abuse Regulation (UK MAR) and that UK MAR prohibits the unlawful disclosure of inside information. Unlawful disclosure is where a person possesses inside information and discloses that information to any other person, “except where the disclosure is made in the normal exercise of an employment, a profession or duties”.

The FCA’s primary focus in PMB 54 is on individuals directly involved in transactions and it warns them that:

• they appear to be handling inside information poorly and taking inadequate action to prevent leaks; and 
• if they unlawfully disclose inside information, deliberately or otherwise, they risk being investigated for market abuse – and the FCA can impose unlimited fines, order injunctions, or prohibit regulated firms or approved persons for breaches of UK MAR.

It also reminds issuers and their advisers that:

• written policies and procedures for identifying and handling inside information can have limited effectiveness if they are not accompanied by a culture and practices which actively discourage leaks; and
• Rule 2.1(a) of the Takeover Code also emphasises the importance of secrecy prior to the announcement of an offer or possible offer, and that information should only be passed to another person if it is necessary to do so and if that person is made aware of the need for secrecy.

We discuss PMB 54 in more detail in the latest episode of our public M&A podcast series, available here.