Market Abuse

Market integrity rests on the foundation of fair and transparent practices. However, the lure of quick profits can tempt some to manipulate the system, engaging in activities termed “market abuse” by the Financial Conduct Authority (FCA).

Understanding the Core:

Market abuse, as defined by the FCA, encompasses a range of behaviours that distort or manipulate the market, creating an unfair advantage for perpetrators and harming the interests of legitimate investors. It primarily comprises two main categories: insider dealing and market manipulation.

Insider Dealing:

Imagine possessing crucial, non-public information about a company that could significantly impact its share price. Using this knowledge to trade in that company’s shares before the information becomes public constitutes insider dealing. This practice exploits an unfair advantage, depriving other investors of access to the same information and undermining confidence in the market.

Market Manipulation:

This category encompasses a broader range of activities aimed at artificially influencing the price of an investment or creating a false or misleading impression of its supply or demand. Examples include spreading false rumours, engaging in wash trading (creating the illusion of activity through self-dealing), and placing large, non-genuine orders to move the price in a desired direction.

The Scope and Impact:

Market abuse poses a significant threat to the integrity and efficiency of financial markets. It erodes investor confidence, discourages fair competition, and can lead to substantial financial losses for unsuspecting individuals and institutions. The FCA, as the UK’s regulatory body, takes market abuse seriously, wielding a range of tools to deter and punish such activities.

Enforcement and Deterrence:

The FCA possesses a robust enforcement framework to combat market abuse. This includes conducting investigations, imposing financial penalties, and even pursuing criminal prosecutions in severe cases. In 2022 alone, the FCA concluded over 40 market abuse investigations, securing millions of pounds in fines. This commitment to enforcement serves as a strong deterrent, reminding market participants of the potential consequences of engaging in such misconduct.

Staying Compliant:

Navigating the complex world of financial markets can be challenging, and even unintentional actions can inadvertently breach regulations. Therefore, understanding and adhering to the FCA’s market abuse rules is crucial for individuals and entities involved in trading activities. Here are some key points to remember:

• Be aware of the different forms of market abuse and their definitions.
• Refrain from using any non-public information for trading purposes.
• Avoid engaging in any activities that could artificially manipulate the market.
• Implement robust internal controls and compliance procedures to monitor trading activity.
• Seek professional advice if unsure about the implications of specific actions.

Beyond Regulations:

Market abuse not only breaches regulations but also erodes trust and confidence in the financial system. Recognising its ethical implications and upholding fair market practices go hand in hand with regulatory compliance. Ultimately, fostering a culture of integrity and ethical conduct within the financial industry is essential to upholding the trust of investors and ensuring the smooth functioning of markets.

Market abuse remains a persistent challenge, demanding constant vigilance from regulators and market participants alike. By understanding the different forms of abuse, its impact, and the FCA’s role in enforcement, individuals and entities can navigate the financial landscape with greater clarity and mitigate the risk of inadvertently breaching regulations.

How Jeremy Gordon can help:

Our team includes experienced lawyers who have defended individuals under criminal and regulatory investigation by the FCA. In addition, our head of Financial Services Regulation was previously employed by the FCA enforcement division and advised on criminal and regulatory investigations.