Railtrack: FSA response to Michael Howards letter

Thank you for your letter of 14 October asking the FSA to conduct an inquiry into possible regulatory breaches by the Secretary of State for Transport, arising out of his recent decision on the future of Railtrack. As you will know, similar questions arose at my briefing before the Treasury Select Committee on Tuesday morning. It may help if I explain, first, the extent of our involvement to date and also our formal responsibilities for matters of this kind.

I can confirm that on Friday 5 October, after the stock market had closed, we were briefed orally by an HM Treasury official on the broad terms of the Government''s likely decision in respect of Railtrack. We were asked for our advice on the implications of such a decision under the Listing Rules (for which we are responsible). We advised that Railtrack''s financial advisers should consider, in conjunction with the company, whether it should seek a suspension of the company''s listing of its shares at the same time as it and the Government made their formal announcements to the market. The grounds for seeking a suspension would be that there would be insufficient certainty as to the effects of the administration order on the company''s equity securities and the risk of a disorderly market.

On Monday, 8 October at 07.00, when the announcements were made with respect to the company''s future, the shares were indeed suspended, at the request of the company.

The Listing Rules impose general obligations of disclosure on listed companies. The UK Listing Authority (which was part of the London Stock Exchange at the time of the initial prospectus but which is now part of the FSA) monitors companies'' compliance with their obligations, as we are concerned to promote full and accurate disclosure to the market of all relevant information on a timely basis. I can inform you that, in view of the concern expressed by shareholders and others, the UKLA wrote to Railtrack on 11 October seeking further information on recent contacts between Railtrack and the Government. In the light of subsequent assertions, the request has been widened, to cover the period since 24 May, when the company announced its preliminary results.

We have also reminded the administrators, the company and its advisors of their continuing obligations to keep the market informed of relevant information. The Listing Rules do not, however, give the UKLA (or FSA) any power to require disclosure of information (whether price-sensitive or otherwise) by the Government in respect of listed companies. Our powers and responsibilities in this regard are limited to the conduct of listed companies. There can, therefore, by definition be no breach of the Listing Rules by Government as it has no obligations under these rules.

Your letter also raises the possibility of "other regulatory breaches", such as whether there were any false or misleading statements. I should explain that, until the Financial Services and Markets Act 2000 comes into force, the relevant statute is section 47 of the Financial Services Act 1986. The offences listed here are criminal in nature. Responsibility for pursuing these offences currently lies with the Department of Trade and Industry and the Serious Fraud Office, not the FSA. However, the provision of section 47 of the Financial Services Act (and the relevant section of the Financial Services and Markets Act 2000 when it comes into force) do not bind the Crown.

In these circumstances I confirm that it is not open to the FSA to conduct an enquiry on the lines you request in your letter.

Notes for editors

1. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

2. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.