Upsurge in FCA investigations for insider dealing

Posted on 03 May 2017 by James Watson

Upsurge in FCA investigations for insider dealing

Since Mark Steward was appointed as Director of Enforcement and Market Oversight for the FCA in October 2015 there has been a noticeable upturn in the number of investigations into insider dealing.

Information obtained from the FCA shows that, prior to Steward's appointment, a relatively small number of investigations had been opened - reaching a low point in 2010 and 2011 with a combined total of only six new investigations. This in contrast to 2016 when the FCA commenced 70 investigations into insider trading – figures for 2017 are on target to equal if not exceed that number. Mark Steward is reported as saying that "insider dealing is ever more detectable and provable" so the momentum of 2016 is no doubt going to continue.

The FCA is using increasingly sophisticated methods to identify and investigate insider dealing. It has shown that it is not going to shy away from bringing difficult cases and in recent years we have seen the FCA's first cross-jurisdictional prosecution of insider dealing. This involved a parallel investigation with the Securities and Exchange Commission, the Department of Justice and the FBI and, more recently, Operation Tabernula - a joint investigation with Serious Organised Crime Agency and National Crime Agency which lasted for eight years and involved over 300 hours of surveillance.

These methods have resulted in a number of high profile convictions of employees of well-known corporate names in the financial world.

Despite the escalation in the number of insider dealing investigations, the FCA Business Plan for 2017/2018 says very little about what its criminal enforcement plans are for the future. The focus for enforcement in the Business Plan is on the implementation of the Senior Managers Regime and the Fourth Money Laundering Directive. The plan details little about this upsurge in insider dealing investigations other than to say that bringing criminal prosecutions to tackle crimes such as insider dealing is one of the enforcement options available to the FCA.

At a recent press conference for its annual business plan, the FCA announced that more information about the strategic direction of enforcement would be published later this year.

What can we expect in 2017?

The tone of the FCA Business Plan is one of prevention which contrasts with the escalating number of insider dealing investigations. Despite the lack of detail in the 2017/2018 Business Plan, based on the FCA's track record we can expect to see more investigations into insider dealing and a consequent rise in criminal prosecutions. These cases have brought the FCA some good publicity and it is unlikely it will opt to scale this part of its operation back.

We are also likely to see the FCA relying on increasingly complex investigation methods and pursuing more high profile individuals. Whereas the defendants in the first prosecutions for insider dealing featured dentists, interns and print room employees, the FCA is now firmly setting its sights on more senior persons in the financial sector.

It will be later this year before the FCA's stated direction for enforcement is disclosed, but it is likely that Operation Tabernula is just the beginning.