Reserve Bank leak: The embargo system was ‘always vulnerable to the actions of a fool’
The news yesterday that the Reserve Bank of New Zealand (RBNZ) would no longer allow embargoed lockups for analysts prior to the release of information was met with frustration from journalists across the industry. This announcement followed on from news that a Newshub journalist had leaked the Bank’s decision to cut the Official Cash Rate to several other people in the Newshub office.
It was difficult to argue against RBNZ’s reasoning for this move, given that a breach of the confidentiality could have had some hefty financial repercussions. As explained by governor Graeme Wheeler in an official statement: “It created the opportunity for improper gain on financial markets and damage to the integrity of the Bank’s communications.”
No evidence has yet emerged that the leak gave rise to any financial market impact, but the bank is unwilling to take this risk again.
The ban on embargoed lock-ups brings RBNZ in line with most international banks, and draws to a close a long tradition of Kiwi journalists being given access to information before the official release.
“We have reviewed the procedures of several central banks,” said RBNZ head of communications Mike Hannah. “None provide lock-ups for analysts prior to major policy announcements, and the few that provide embargoed lock-ups for media representatives take extensive measures to control the media environment in the lock-up that are not viable for us.”
Once trust is lost, it’s difficult to win it back. And an apology from MediaWorks was not enough to coax the RBNZ off the ledge.
Businessdesk reporter Pattrick Smellie, who has attended various lockups over the years, battled to hide his frustration when the news broke yesterday.
“Any financial journalist with half a brain knows that huge sums of money in the Forex and bond markets ride on the decisions of central banks and that to leak that information is a very seriously damaging thing to do,” said Smellie. “It’s a shame that trust has been destroyed. It will make my and many other peoples’ jobs harder. However, the involvement of not just one reporter but members of a newsroom at the other end makes the Reserve Bank’s decision easy enough to understand.”
To put the gravity of this into perspective, one need only look the example of a fake Associated Press tweet reporting a White House bombing in 2013, which led to around £90 billion being wiped off the stock market temporarily.
What journalists publish has a major impact on international markets, and this is only becoming more pronounced in the age of algorithmic trading. Given that even a false report could have a major impact on financial figures, Smellie explains that lock-ups have played an important role in ensuring accuracy. “Embargoes and lock-ups allow journalists time to absorb and make judgements about complex information,” he says.
Embargoes originally emerged as a means to give reporters access to information prior to the official release so that they would have enough time to pull together a story for publication in a newspaper or prepare a broadcast for TV or radio. The tradition was carried over into the digital age, but with publishing now occurring around the clock, it has become more difficult to control the process.
Embargoes (usually in bright red typeface) are tagged onto press releases of every persuasion these days—from April Fools’ jokes to awards winners—and every once in a while a journalist is slapped on the wrist for publishing before the specified date. But this instance was different.
“This isn’t like breaking the embargo on the NZ Book Awards, where everyone is cross but it doesn’t change anything,” says Smellie.
This may be true, but there was some inevitability about a leak eventually happening. And although the lock-up tradition was based on years of trust, RBNZ must’ve been aware that a leak would eventually occur.
When questioned on this, RBNZ’s Mike Hannah admits that even if the leak hadn’t happened, RBNZ may have discontinued lockups in any case.
“We realised that, with technology as it is now, we couldn’t satisfy ourselves that the risks of leakage could be controlled in our environment,” Hannah explains.
“The time for such a decision may have come anyway, regardless of the leak, but the leak meant we had to accelerate our thinking, which has been progressing over time as technology developed.”
What is surprising—and perhaps a nod to the integrity of Kiwi journalists—is that a leak of this nature didn’t occur earlier. As Smellie says: “It’s a system that’s operated successfully on trust for many, many years but was always vulnerable to the actions of a fool.”
And the reality is, RBNZ doesn’t think it’s worth it to gamble New Zealand’s finances on the likelihood of another ‘fool’ making it into the lockup room.