Better late than never: UK set to update criminal insider dealing framework

The UK is set to implement a new statutory instrument (SI) to align the scope of the UK’s criminal insider dealing regime with the corresponding civil regime.

The Criminal Justice Act 1993 provides the UK’s criminal insider dealing offences and is supplemented by the Insider Dealing (Securities and Regulated Markets) Order 1994, which sets out 49 relevant markets for the purpose of criminal insider dealing. However, that list is outdated and includes several exchanges that have been renamed or do not exist anymore, as well as omitting important exchanges such as the New York Stock Exchange (NYSE).

The criminal regime is particularly deficient when compared with the UK’s civil insider dealing regime, provided in the Market Abuse Regulation (MAR).

The new draft SI is set to improve the criminal regime so that it will apply to over 400 markets and a wider selection of financial instruments, in particular by:

1. updating the list of relevant markets in line with MAR, to include any UK, EU or Gibraltar: regulated market (e.g. the London Stock Exchange); multilateral trading facility (e.g. AIM); and organised trading facility;
2. including a further three markets that will be relevant for the criminal regime, but that are not currently in scope for MAR, being any market established by: (i) NASDAQ; (ii) SIX Swiss Exchange; or (iii) the NYSE; and
3. expanding the list of relevant securities in line with the civil regime to include, for example, exchange traded funds and currency options.

The Treasury has explained that the inclusion of additional markets in the criminal framework beyond the existing scope of MAR is necessary for the FCA to tackle a “persistent trend” of organised crime groups recruiting individuals in the UK with insider knowledge relating to securities on these markets.

These changes are long overdue. In 2015, the Treasury, Bank of England and FCA jointly conducted The Fair and Effective Markets Review, which recommended that the UK criminal framework for insider dealing be updated to include a wider range of financial instruments. The new SI is a sensible and uncontroversial step to bring those recommendations into effect and we can expect these changes to come into force in short order. The changes should not prove burdensome for firms already required to comply with MAR.

The new SI has added significance following the FCA’s warnings in recent years of the heightened risk of insider dealing resulting from increased home working and ease of access to financial markets. Despite this warning, the FCA has been criticised for a decline in insider dealing investigations in the same period. We will watch with interest whether these updates to the criminal regime stimulate an increase in prosecutorial activity from the FCA.