Bank of Russia proposes ‘firewalls’ in financial market

The Bank of Russia intends to propose using a toolkit for the market participants to help companies rule out temptation to benefit from insider information and prevent information leaks. The companies should desirably place insiders in individual rooms, strictly restrict their communication with fellow staffers, and incorporate prohibition in their employment agreements to disclose sensitive information, as the regulator’s draft recommendations say.

The recommendations are aimed at all the financial market participants with a special focus on financial intermediaries who operate on behalf of customers.

The Bank of Russia proposes that they sharply discriminate between business units receiving insider information from customers and business units responsible for operations in the financial market. In this regard, an access to the insider information must be restricted not only for the employees who make transactions in the market, but also for public and nonpublic corporate analysts. The regulator advises them to have securities of issuers affected by information disclosures available in special lists and prohibit transactions with such financial instruments in some cases.

As a matter of fact, the regulator’s recommendations use so-called ‘firewalls’ principle as a basis, where an institution treats structural units subject to their access to nonpublic information, and its transfer is only possible by rule.