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(see rule 10.17 in the proposed Code)

1. Section 21 of the Financial Services and Markets Act 2000 prohibits anyone, in the course of business, from communicating an invitation or inducement to engage in investment activity. This is commonly referred to as "the financial promotion restriction". There are a number of exemptions to the financial promotion restriction and these are set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001^(-3-). Two of these exemptions are of particular relevance to broadcasters - article 20 of that Order contains an exemption in respect of communications by journalists, and article 20A of that Order contains an exemption in respect of promotions broadcast by a company director or employee of a company. This note sets out guidance on how broadcasters can take advantage of the exemptions to the financial promotion restriction.

Meaning of "financial promotion"

A financial promotion is an invitation or inducement to engage in investment activity (in accordance with section 21(1) of the Financial Services and Markets Act 2000 (Restrictions on financial promotion)).

Exemption in respect of communications by journalists (article 20 exemption)

2. The exemption for communications by journalists applies to any non-real time financial promotion they prepare while acting as journalists. For the exemption to apply to broadcast journalists the financial promotion must be in either:

1. a regularly updated news or information service (such as a website or teletext service); or
2. a television or radio broadcast or transmission,

and the main purpose of the broadcast must not be to advise on, or lead, or enable, people to buy or sell securities or contractually based investments.

3. Where the subject matter of the financial promotion is shares and the financial promotion identifies directly a person who issues or provides the shares, journalists must also fulfil a disclosure requirement to benefit from the exemption.

Meaning of "share":

Share means any share in a company and includes a derivative on such a share (including traded options).

Disclosure requirement: A financial interest would be subject to disclosure where the journalist (or a close family member) would be likely to get a financial benefit or avoid a financial loss if people acted in line with the financial promotion. Where that is the case, the journalist or editor responsible for the financial promotion must declare the nature of any financial interest they (or their close family member) hold.

Note: The disclosure requirement is subject to certain exceptions, set out in paragraphs 4-6 below.

Meaning of "close family member":

Close family member means a spouse and children under eighteen years of age.

4. The exceptions to the disclosure requirement are where the financial promotion is in either:

1. a service or broadcast which has proper systems and procedures which prevent the publication of communications without disclosure of financial interests; or
2. a service or broadcast which falls within the remit of:
1. the Code of Practice Issued by the Press Complaints Commission;
2. the Ofcom Broadcasting Code^(-4-);
3. the Producer's Guidelines Issued by the BBC.

5. If a broadcaster wishes to take advantage of the article 20 exemption for journalists, it has a choice. The broadcaster can either:

1. comply with the disclosure requirement; or
2. put in place proper systems and procedures which prevent the broadcast of financial promotions without disclosure of financial interests.

6. The Financial Services Authority suggests that option in 5.b. above could be achieved by, for example, the broadcaster requiring people working on financial programmes to declare and register their share ownership. This register would be available to the most senior editorial staff that can ensure that self-interested promotions are not broadcast by the person concerned. The Financial Services Authority would also expect relevant staff to be required to be made aware of the existence of this register and of their obligations to disclose financial interests, and to confirm their acceptance of these obligations in writing.

Promotion broadcast by company director etc (article 20A exemption)

7. The main purpose of the exemption for promotions broadcast by company directors is to guard against the possibility that, during the course of a broadcast interview or a live website presentation, a financial promotion is made inadvertently by a director or employee of a company or other business undertaking when that person is not acting as a journalist.

8. Provided that the financial promotion made is not made as part of an organised marketing campaign, the exemption applies where the financial promotion:

1. comprises words which are spoken by the director or employee and not broadcast, transmitted or displayed in writing; or
2. is displayed in writing only because it is part of an interactive dialogue to which the director or employee is a party and in the course of which that person is expected to respond immediately to questions put by a recipient of the communication.

The exemption also requires that the director or employee is identified as such in the financial promotion before it is communicated.

Investment Recommendations

9. Broadcasters who produce investment recommendations which are intended for the public must comply with the requirements of the Market Abuse Directive^(-5-) relating to the fair presentation of Investment recommendations and disclosure of conflicts of Interest.

Note: this Directive has not yet been implemented into UK law. In doing so, the Treasury and the FSA propose to provide exemptions for investment recommendations appearing in a radio or television programme which falls within the remit of certain specified forms of appropriate UK regulation, including the Ofcom Broadcasting Code. See HMT/FSA Joint Consultation Document of 18 June 2004).

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Footnotes:

3. - S.I. 2001/1335.

4. - Note: the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 currently refers to the ITC and Radio Authority Programme Codes. The Intention is that these references will, at the appropriate point, be altered to a reference to the Ofcom Broadcasting Code.

5. - See Article 6(5) of Directive 2003/6/EC of the European Parliament and the Council of the European Union on Insider dealing and market manipulation (market abuse) (O.J. No L96, 12.4.2003, p16) and Commission Directive 2003/125/EC of 22 December 2003 Implementing Directive 2003/6/EC as regards the fair presentation of Investment recommendations and the disclosure of conflicts of Interest (O.J. No L339, 24.12.2003, p.73).

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