Last week's UK Financial Services Authority (FSA) discussion paper on regulatory transparency is a statement of intent against widening disclosure, say counsel.
"The FSA has put a marker down saying, 'if we are required to disclose sensitive information, it would be a terrible thing for us.' For once, it is siding with the regulated community which is also desperate not to have every skeleton in its closet disclosed," said a UK regulatory partner.
The discussion paper is the regulator's response to the Information Commissioner's decision that under the Freedom of Information Act the FSA should reveal the 12 companies that missold endowment mortgages in the late eighties and early nineties.
But the FSA had already taken informal action against the companies and required them to compensate customers, so it is taking the decision to court.
"If every time the FSA found some nasty information in the course of exercising its supervisory function it has to disclose it, and trust me it finds nasty information on a daily basis, then there would be two major concerns," said the partner.
"It would worry about harming consumer confidence and be concerned that companies and banks would not tell them about problems."
Although primarily referring to the retail sector, the discussion paper does state that its final "Code of Practice on Regulatory Transparency, when agreed, will apply across all [its] activities". The FSA wants to neuter controversial areas over disclosure before standard practice is created.
But the court system will decide, via its interpretation of the Freedom of Information Act (2000). And if it finds that all supervisory information is fair game, it could be disastrous for investment banks.
For example, the inducements rule requires disclosure of fees on structured products. This is information that investment banks like to keep secret, but if the FSA is performing supervisory work around structured products, this sensitive information could be revealed.
"It would be an awful scenario for investment banks if that sort of information came out," said one partner in London. "This discussion paper is not only a statement of intent, but a plea to Her Majesty's Treasury to rewrite the rules around what the FSA can keep out side the disclosure regime."