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FCA increasingly favouring criminal prosecution in insider dealing cases, says expert

Out-Law News | 03 Oct 2016 | 10:29 am | 1 min. read

The number of criminal investigations into cases of insider dealing opened by UK regulators increased by 175% over the last financial year and early figures indicate the total for 2016/17 will be higher still, an expert has said.

Of the 65 criminal investigations specific to insider dealing opened by the Financial Conduct Authority (FCA) since it was set up in April 2013, 14 were opened between April and July 2016, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com.

Criminal insider dealing investigations take years to conclude, according to financial regulation expert Michael Ruck of Pinsent Masons. The FCA has successfully obtained criminal convictions in seven of the 10 cases it has completed and closed since 2013, and has issued regulatory sanctions in four of the 10 cases. Regulatory sanctions and criminal prosecutions are not mutually exclusive.

The number of suspicious transaction reports (STRs) received by the FCA has also increased recently, from 1,626 cases in the year to April 2014 to 1,831 cases in the year to April 2015. Suspicious transactions are often, but not always, associated with insider dealing.

"The process to close an investigation is a long one, which is likely why we have seen just 10 investigations completed since 2013, but we are starting to see more action taken," said Michael Ruck of Pinsent Masons. "The FCA is closely reviewing systems and controls that are in place to identify all forms of market abuse, meaning that more suspicious activity is brought tolight. This focus has led to a greater increase in the number of investigations into insider dealing."

"With new sentencing guidelines put in place in 2015, it is inevitable that financial penalties for firms will also increase. Although we are seeing some individuals walk away with criminal convictions for insider dealing, it is likely that we will continue to see a mixture of punishment as we have done over the last year," he said.

Firms that become aware of suspicious transactions or orders, where there are reasonable grounds to suspect it may be insider dealing or another prohibited behaviour that may constitute market abuse, must submit a suspicious transaction and order report (STOR) to the FCA. Insider dealing refers to the illegal practice of dealing on the basis of having access to confidential information which is not publicly available.