Insider dealing and market abuse are the related concepts by which individuals or companies use market sensitive inside information to manipulate or gain an unfair advantage over the market.

While insider dealing is a crime under the Criminal Justice Act 1993, market abuse comprises a range of behaviours and is more loosely defined under civil, rather than criminal, law.

The maximum punishment for anyone found guilty of the crime of insider dealing is ten years imprisonment. No one can be imprisoned for breaching civil law, but anyone found liable of market abuse offences can face unlimited fines.

The implications for any individual or organisation accused either offence are serious. Not only are the potential punishments severe, but the prospect of mounting an effective defence of what are usually highly complex allegations can be daunting.

Insider dealing and market abuse under the Market Abuse Regulations

Insider dealing and market abuse are governed in the UK by the Market Abuse Regulations (MAR), which came into force in July 2016. MAR is overseen by the Financial Conduct Authority (FCA), which has investigatory and enforcement powers against individuals and organisations for alleged breaches.

The Market Abuse Regulations proscribe three specific behaviours, any one of which can, on its own, comprise a breach. These three behaviours are:

Market manipulation
Unlawful disclosure of inside information
Insider dealing

The first of these – market manipulation – is a relatively broadly drawn offence that captures the following four activities: ‘manipulating transactions’; ‘manipulating devices’; ‘dissemination, misleading behaviour and distortion’; and ‘misleading information or inputs in relation to benchmark’.

The second of these – unlawful disclosure of inside information – arises where an individual or company possesses ‘inside information’ which they disclose to any other person (except where the disclosure is made in the normal exercise of their employment, profession or duties).

It is an exemption to the offence of unlawful disclosure of inside information when the information is disclosed in the course of a ‘market sounding’, which is a communication of information, prior to the announcement of a transaction, to gauge the interest of potential investors.

The criminal and civil offences of insider dealing

The third offence under the Market Abuse Regulations – insider dealing – has the most serious legal implications.

There is both a civil and criminal offence of insider dealing.

The civil offence of insider dealing is where a person possesses inside information and uses that information by acquiring or disposing of (for his/her own account or for the account of a third party), directly or indirectly, financial instruments to which that information relate.

The criminal offence of insider dealing, meanwhile, prohibits a person from dealing in price-affected securities when in possession of inside information; encouraging another to dealing in price-affected securities when in possession of inside information; or disclosing inside information otherwise than in the proper performance of his employment, office or profession.

It is significant that definition of ‘inside information’ differs between the criminal and civil offences. While ‘inside information’ under the civil definition covers a variety of categories of information, the criminal definition is much more focussed. Indeed, the criminal law definition covers just one category of information: that which relates to particular securities or to a particular issuer(s).

The FCA has secured a number of headline-grabbing criminal convictions for insider dealing, including Operation Tabernula, which resulted in two convictions with sentences of 4.5 and 3.5 years imprisonment and agreed confiscation orders totalling £1.7 million. It was heralded by the FCA as demonstrating its “capability and determination to root out this kind of abuse and ensure [the] market and the investing public are properly protected”.

How does the FCA investigate insider dealing / market abuse?

An FCA investigation into suspected insider dealing or market abuse may be triggered as a result of one of the following: a suspicious transaction and order report; monitoring carried out by the FCA; or information being reported to the FCA from another source.

The FCA will initially embark on gathering preliminary evidence and the FCA’s Enforcement and Market Oversight division will decide whether to commence a formal investigation. If so, then a notice of appointment of investigators will be issued to the relevant firm or individual, which may be the first time that the individual/firm in question is aware of the investigation.

These investigations are not quick with the investigation stage itself typically lasting at least one to two years (sometimes longer), and with the FCA facing a mounting backlog of open investigations, these timeframes will unfortunately only increase. Once the investigation has concluded, the FCA makes its own decision as to whether or not there has been serious misconduct, and if the matter is to be contested then it must be referred to a separate “decision maker”, most commonly the Regulatory Decisions Committee (RDC).

'Dual track' FCA investigations into insider dealing / market abuse

The fact that the FCA has the power to bring both civil actions and launch criminal prosecutions for insider dealing has led to the rise in so-called ‘dual track’ investigations.

This is when the agency embarks on an investigation without first narrowing the scope of the investigation to a criminal or civil breach. It will conduct an open investigation and make an assessment based on the best admissible evidence as to which route to pursue.

The impact of these ‘dual track’ investigations is potentially very serious. Differences in the civil and criminal legal frameworks on matters such as disclosure and interviews means there is a danger that an individual may, in a desire to assist the FCA with its inquiries, inadvertently harm their own case in the long-run.

Anyone who is caught up in a dual track investigation should seek immediate expert legal advice.

Opportunistic Insider Dealing

While the subjects of FCA investigations are frequently professional traders for whom regulator scrutiny may be expected, the FCA regularly investigates non-professional traders who may only dabble in buying and selling shares.

The subjects of these so-called ‘opportunistic insider dealing’ investigations may be suspected of making trades based on inside information picked up or shared during a social encounter.

So, for example, the FCA may treat as suspicious the fact that an individual is friends with someone who works in a senior role at a company in which the former buys or sells shares.

The impact of an FCA investigation on these individuals may be even more serious than on a professional trader. Casual share dealers may lack the legal insurance, the financial wherewithal, of the emotional stamina to easily mount an effective defence against an ill-founded claim of insider dealing.

The FCA revealed, in response to an FOI request from Hickman & Rose, that over the financial year 2022/23 over three quarters (77%) of its insider dealing investigations were into opportunistic insider dealing.

The agency also gave the following definition of opportunistic insider dealing: “[Opportunistic insider dealing investigations are] investigations into circumstances that suggest an individual may have misused inside information which has come to them as a by-product and unprompted (whether through employment, personal connections or through being invited to be wall crossed).”

Hickman & Rose specialise in this area of law. Its lawyers have extensive experience acting for individual accused of opportunistic insider dealing and know and understand the special pressures these matters can exert on investigation suspects.

How our expert lawyers can help

Hickman & Rose has extensive experience acting for individuals facing accusations of market abuse and insider dealing. Members of our team have been involved in some of the FCA’s most significant recent insider dealing prosecutions.

Our lawyers specialise in both regulatory and criminal law and can develop a defence strategy that takes into account the unique strategic considerations at play should the FCA pursue a ‘dual track’ investigation.

We have experience of acting throughout the entire lifecycle on an FCA regulatory case, from compelled interviews, through negotiating settlements to contesting findings before the RDC. We have similarly advised many individuals facing criminal allegations by the FCA, and will work closely alongside our clients to find the best possible resolution in the circumstances.