FSA criticised over personal loan rules

The chief financial watchdog has been criticised for "intruding into the private lives" of company directors in advance of tomorrow's deadline for board members to disclose personal loans taken out against shares in their own companies.

The Financial Services Authority has clarified its position about such loans following the confusion that led David Ross, the founder of Carphone Warehouse, to resign from the boards of three companies after failing to disclose loans pledged against £201.6m of his companies' shares.

But lawyers and investor groups have said the FSA's insistence that such pledges must be declared, risks deterring people from becoming directors of public companies. "It would be a turn off for directors to have to disclose their private banking arrangements," said a senior partner at a prominent law firm.

Another lawyer, James Palmer, a partner at Herbert Smith, said: "The market is entitled to information about a company but not personal information about its directors." His words were echoed by David Pudge, a partner at Clifford Chance. "There is an element of personal intrusion in this," he said.

The FSA has agreed to take no action against Mr Ross nor any director who discloses such a loan before tomorrow's deadline. Since it announced the decision on January 9, it has been flooded with declarations, with one estimate suggesting the number has now topped 40. Before Mr Ross' announcement, it was understood an exemption against important shareholders having to declare loans collateralised in this way also applied to directors, despite a different rule ordering directors to disclose all share transactions.

But the FSA has said it understood European Union regulation demanded that directors should make such declarations, although it admitted practices varied between member states.

British officials are now set to approach the Committee for European Securities Regulators to move towards a pan-European approach.

Meanwhile, Petrofac, the oil and gas facilities company, became the latest FTSE 100 company to disclose that a director had used some of its shares to back personal loans. It joins a list including Icap, Rexam, G4S, British Land, Tullow Oil, Vodafone and Compass.

But one lawyer has warned the FSA's position will simply mean unnecessary bureaucracy. "I don't think we should be cluttering up the market with announcements that don't have any effect," he said.

Even investors are complaining the regulations will not help their decisions. "I think the FSA has got it wrong," said one head of compliance at an asset management company. "As investors, we don't want obstacles being put in place which scare off people acting as directors."

Roger Lawson, from the UK Shareholders' Alliance, said: "I don't think it is really necessary for shareholders to be aware of such loans unless the director is using them to bet against their own company."

The FSA defended its position, saying: "This is what we believe to be the right approach. We think it is important for disclosure to be made to the market."

Source:
http://www.ft.com/cms/s/0/06b525b4-e825-11dd-b2a5-0000779fd2ac.html