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Rayner my parade! The importance of specialist advice.
Jemma Brimblecombe
Insider dealing has long been a serious topic for financial services firms and their regulator, and continues to be a widespread issue across the sector. In the UK, activities which can amount to insider dealing have been criminalised since the 1980s, and are now covered by Criminal Justice Act 1993 (“CJA”), as amended most recently by The Insider Dealing (Securities and Regulated Markets) Order 2023.
In England and Wales, the Financial Conduct Authority (“FCA”) is empowered by section 402 of the Financial Services and Markets Act 2000 to prosecute criminal offences of insider dealing under the CJA. There is also a parallel civil regime under the Market Abuse Regulation, as set out in the MAR module of the FCA’s Handbook, pursuant to which the FCA can also take enforcement action.
A key focus for the FCA
Although the FCA has always aimed to deal with occurrences of criminal insider dealing robustly, its track record on successfully prosecuting these kinds of cases is not especially impressive. Its first criminal prosecution was brought in 2008, and since 2017 it has only secured three convictions. However, a number of recent developments seem to point to a renewed focus on this area.
Firstly, the decision in 2023 to appoint two Executive Directors of Enforcement, one with specific responsibility for the wholesale markets, was a clear statement of intent that that insider dealing and market manipulation remains an organisational priority. Such approach is likely to be significantly buoyed by the conviction of former Goldman Sachs analyst Mohammed Zina in February 2024 for six counts of insider dealing (as well as three counts of fraud).
In the same month, the FCA publicly announced that it also had conducted a large coordinated operation with the National Crime Agency (“NCA”) and arrested three individuals for insider dealing. The use of a press release to announce this itself reflects a regulator that is keen to bite back against any suggestions that it has been asleep on the job. This trend is only likely to continue as the new Enforcement leadership team put their stamp on the division.
Additionally, the FCA has been very clear that it is substantially investing in its data and technology as part of its ongoing Transformation programme with the aim of becoming a “data-led regulator”. This is a longer-term and higher-level factor which will likely play an important part in tackling insider dealing by facilitating early detection and enhancing the FCA’s overall oversight of the primary and secondary markets.
Looking ahead, and as insider dealing methodologies inevitably become more sophisticated, it is equally important that the FCA stays of the curve and is proactive rather than reactive in its approach to detection and enforcement. Whilst its increased focus on data and technology will no doubt be central to this, the FCA cannot afford to work in a silo and will need to work closely with law enforcement and regulatory partners, both domestically and overseas, to share knowledge, intelligence and best practice.
A serious issue for firms, too
While the FCA will seek to take action against those participating in insider dealing or similar behaviours, regulated firms and their compliance functions also need to be aware of the importance of managing their financial crime risk and having systems and controls in place that will allow them to quickly identify anything suspicious. This will include having effective staff training programs, high quality transaction monitoring and effective information barriers, and firms that fail to do so may find themselves in breach of Principles 2 and / or 3 of the FCA’s Principles for Businesses as well as the Market Abuse Regulation and could face unwelcome supervisory or enforcement attention.
The FCA’s February 2024 Market Watch newsletter is also instructive and should be read by all firms which have access to inside or other non-public types of information. The FCA used this publication to highlight the particular growing risk posed by organised crime groups, who may for example seek to recruit staff from such firms in order to gain access to market sensitive information, and of the corresponding need for firms to ensure that they are managing such risk appropriately.
Conclusion
With better detection, improved use of data and an increasingly assertive approach, we can expect to see a buoyed FCA continuing to take action in this area.
It is important to recognise that criminal or regulatory exposure is not limited to the individuals directly involved and all authorised firms need to be closely attuned to the risks inherent in their operations and to ensure that their systems and controls are appropriately calibrated to mitigate these as far as possible.
Further information
If you have any questions regarding this blog, please contact James Alleyne in our Criminal team.
About the authors
James Alleyne is Legal Director in the firm’s Financial Services Group. He advises clients on the full spectrum of financial services and FCA-related matters, including on authorisation applications, perimeter and supervisory issues, enforcement investigations and cases before the Regulatory Decisions Committee and Upper Tribunal.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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