Proposed FSA rules are unclear

Proposals to introduce market abuse avoidance measures could outlaw current legal practice, City lawyers warned this week.

The Financial Securities Authority (FSA) has issued a draft code of market conduct to complement criminal sanctions against insider dealing and market manipulation.

But according to senior lawyers, the proposals are unclear and lack detail and transparency.

The Law Society's company law committee last week considered the proposals, concluding that it has significant differences with the FSA's position.

A full response to the draft will be sent by the Society to the FSA in the next few days.

The committee listed a number of flaws in the current draft of the code.

It criticised the lack of clarity over what state of mind those accused of market abuse should have, and expressed concern that there may be inadequate defences to what will be a quasi-criminal offence.

The committee is also concerned that the FSA has not run through a detailed analysis of common corporate finance transactions and reflected these in the code.

Such a list of examples is crucial, according to the committee.

Annabel Sykes, a partner in the financial services group at City firm Freshfields, and a member of the Law Society's financial services working party, said the market abuse regime would impact significantly on solicitors advising on corporate finance transactions and regulatory matters.

Ms Sykes said the draft code was not yet sufficiently clear.

She added: 'Unless clarified there will be concern that some accepted market practice may no longer be acceptable.

This will damage the very financial market the regime is designed to protect.'

Tim Herrington, a partner in the corporate department at City giant Clifford Chance, said the FSA had failed to provide enough examples of corporate transactions and to show the relevance that the market abuse code would have on them.

He maintained that the provisions, when introduced, would become the dominant method of regulating market abuse, taking over from the criminal sanctions currently used.

Jeremy Fleming