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A best practice approach to handling confidential information

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Published on: Wednesday, May 28, 2014

A report on confidential information released yesterday by ASIC highlights the need for listed entities to take responsibility for the management of confidential information.

According to the corporate regulator, poor practices can negatively affect reputation, jeopardise the success of a transaction and may lead to ASIC action.

ASIC reveals that a 2013 review of the way companies handle their confidential, price-sensitive information during analyst and investor briefings and before the announcement of market-sensitive corporate deals, found some companies came up short because of poor implementation of their policies and procedures to handle material information.

“Also some companies at the smaller end of the market delegated responsibility for protection of their deal information to their advisers. Companies must understand the risks of going down this path,” says ASIC Commissioner John Price.

“Selective access to information can lead to market misconduct, including breaching continuous disclosure laws and increasing the risk of insider trading. It can also lead to a perception of unfairness amongst shareholders and the broader market.”

According to the Governance Institute of Australia, relying heavily on advisers to put a lid on market-sensitive information is “not an option”.

“Companies own the information, and they need to ensure that their advisers have the necessary processes in place to protect it,” says the Institute’s Chief Executive Tim Sheehy. “It’s not a case of delegated responsibility.”

When it comes to the effective management of confidential information and the responsible handling of rumours, there is no one-size-fits-all approach, notes Sheehy.

“It depends on the nature, size and sensitivity of any particular transaction and the circumstances of the corporation. ASIC recognises this and encourages industry participants to take ownership of the issue, which means the market becomes invested in finding an effective solution to adhering to the continuous disclosure rules.”

Commissioner Price says it’s important for companies not to become complacent.

“They should address any perception – real or otherwise – about unfairness in access to market-sensitive information.”

ASIC also warns it has the means to detect misconduct.

“Our real-time market surveillance system gives us the ability to aggressively interrogate trades before announcements, and we will take enforcement action where appropriate,” says ASIC Commissioner Cathie Armour.

So what can companies do to ensure a best practice approach?

The Governance Institute of Australia provides the following five principles, which are relevant to capital raisings, mergers and acquisitions and other corporate transactions:

  1. Have internal systems in place to protect confidential, market-sensitive information.
  2. Maintain an insider list when conducting a confidential, market-sensitive transaction.
  3. Ensure directors, executives and employees are aware of their confidentiality obligations.
  4. Enter into confidentiality agreements with advisers and other service providers before passing on confidential, market-sensitive information.
  5. Know which potential investors are being sounded on their behalf (and when and how) in relation to a transaction.

“Importantly ASIC supports these guidelines and as today’s report demonstrates, is mandating industry-led guidance on this important issue,” Sheehy concludes.


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