FCA increases its efforts to deter insider dealing

In recent years, the Financial Conduct Authority has doubled down on its efforts to deter individuals from insider dealing.

Insider dealing engages dual liability under UK law, constituting both a criminal offence under the Criminal Justice Act 1993 and a civil breach of the UK Market Abuse Regulation (UK MAR), and the FCA has enjoyed successful outcomes in a number of high-profile cases under both regimes.

In turn, this has garnered press coverage and generated public interest, which has helped to spread the deterrent message.

However, in recent months the FCA has changed its approach.

Rather than focusing on the press solely to support its efforts to deter insider trading by publicising such cases, the FCA’s attention has turned to the media itself and its potential involvement in market abuse offences.

What is the FCA’s concern?

The FCA stated in March it was “concerned a culture may have developed among market participants where strategically leaking inside information to the media is acceptable during a transaction”.

Although the intentional leaking of material information to the press in respect of live mergers and acquisitions deals is far from being a new phenomenon, according to the FCA it appears to be on the rise.

As a result, the regulator is increasing its messaging that the strategic leaking of inside information to the media is not acceptable.

The regulator published a Primary Market Bulletin (no. 54) in March expressly focused on its condemnation of strategic leaks and recently hosted a round table at which attendees from the FCA met with M&A leaders from major investment banks to discuss possible ways of stopping the practice.

In case the point had not already been made, Therese Chambers (joint executive director of enforcement and market oversight at the FCA), specifically referenced the practice in a conference speech last month, during which she outlined the regulator’s market abuse priorities.

Why do strategic leaks happen?

The motivations behind strategic leaking are varied. A small minority leak inside information to the press in the hope of gaining a trading advantage from the resulting share price volatility the reporting will generate.

Trading that takes place on this basis is likely to give rise to both the criminal and civil offences of insider dealing. The disclosure itself, meanwhile, may also giverise to criminal and civil liability.

However, the more common reason for strategic leaking is the desire by someone involved in the deal to try to force it in a particular direction.

A nod and a wink to a friendly journalist can help someone behind the scenes to shape the narrative behind the deal; for example, to frame it in a positive light, or to rally shareholders to support it in circumstances where the board is against it.

Conversely, it can also be helpful in seeing off a hostile takeover. A Sunday morning splash about a traditional UK plc facing a hostile approach from an overseas company may spark political hand-wringing and government scrutiny that scares away the deal.

Leaking inside information through the press allows interested parties to anonymously put information in the public domain that should not be there, in the hope it will ultimately bring a benefit.

Although some people who take this approach undoubtedly consider it to be just one of the dark arts of the deal, they should be aware by in acting in this fashion they may be at risk of breaching Article 14 (c) of UK MAR, which expressly prohibits the unlawful disclosure of inside information.

What is an unlawful disclosure?

Article 10 of MAR provides a definition of the behaviour that would contravene the Article 14(c) prohibition. In order for an individual to breach UK MAR they must first be in possession of inside information.

Inside information is information of (a) a precise nature, (b) which has not been made public, (c) which relates to an issuer of financial instruments, and (d) which is price sensitive.

If a person is in possession of such inside information and they disclose it to another person, then unless the disclosure is made in the normal exercise of an employment, a profession or duties, it will be deemed an unlawful disclosure and in contravention of Article 14.

If, for instance, an individual was in possession of inside information as a resultof their involvement in a potential takeover and they chose to share that information with a journalist, then the disclosure would be unlawful.

It would not matter if the journalist ultimately decided not to publish the information, the mere disclosure in these circumstances would be sufficient to breach UK MAR.

Furthermore, it would not matter whether the inside information was particularly detailed (merely disclosing Company A was in takeover discussions with Company B could be sufficient), nor whether the inside information was infact ever traded on.

How easy will the FCA find it to investigate?

The FCA will undoubtedly hope its increased focus on the practice of strategic leaks will force those responsible for making such disclosures think twice.

If it does not work and the FCA sees continued flouting of Article 14 UK MAR inmedia outlets, it may feel as though it has no choice but to resort to enforcement action to deter such activity. However, such a step may not be that easy.

Although seeing reports of a hitherto unannounced deal in the press means it may be easy to establish inside information has leaked, leaks by their very nature happen through informal, off-the-record conversations, making it hard to trace the source.

When you add into the mix the complicated issues around journalistic privilege of sources, it is clear collating the evidence to prove a breach will be anything but straightforward.

Despite these difficulties, it is important to remember the FCA has recently been adopting a more assertive and resolute approach to enforcement, reflecting its commitment to safeguarding market integrity.

If it is successful in taking enforcement action against an individual, the penalty will be a sizeable fine and the possibility of a ban from the industry. Loose lips can sink ships — and also careers.

This article was originally published in FT Advisor 15 May 2025