Market abuse occupies a specific and serious position within financial crime: it is conduct that undermines the integrity of financial markets and the confidence of investors and participants in those markets, and it attracts correspondingly severe consequences. A criminal conviction for insider dealing carries up to seven years’ imprisonment under the Criminal Justice Act 1993. The FCA’s civil enforcement powers allow it to impose unlimited financial penalties and issue prohibition orders barring individuals from working in financial services. And the reputational consequences for a regulated firm whose employees are found to have engaged in market abuse are severe and lasting.
For regulated firms, the investigation of suspected market abuse sits at the intersection of regulatory obligation, criminal law, and employment law, and it must be handled with the rigour and independence that each of these dimensions requires. Bond Rees provides market abuse investigation support for regulated firms and their legal advisers, combining digital forensic capability with financial markets knowledge to produce evidential findings that support both the firm’s regulatory engagement and any disciplinary or criminal proceedings.
What the Law Prohibits
The legal framework governing market abuse in the UK combines criminal and civil provisions:
Insider Dealing — Criminal
The Criminal Justice Act 1993 makes it a criminal offence to deal in securities on the basis of inside information, to encourage another to deal on the basis of inside information, or to disclose inside information outside the normal exercise of employment or profession. Inside information is information of a precise nature, which is not generally available, which relates to particular securities or their issuers, and which, if generally available, would be likely to have a significant effect on the price of the securities.
The precision requirement is important: a vague expectation or a general belief that a company will perform well is not inside information; a specific knowledge that a particular transaction will occur, or that a particular financial result will be announced, is. The investigation of insider dealing therefore turns centrally on establishing the specific information the alleged insider had, when they had it, and the relationship between that information and their trading or tipping activity.
Market Manipulation — Criminal and Civil
The Financial Services and Markets Act 2000 creates a civil market abuse regime covering market manipulation and the improper disclosure of inside information. Market manipulation includes creating a false or misleading impression about the supply of, demand for, or price of an investment, and engaging in transactions or orders that secure an abnormal or artificial price. The FCA can impose unlimited civil penalties for civil market abuse without the evidential standard required for criminal prosecution.
The EU Market Abuse Regulation (now retained in UK law as UK MAR) extends the regime to a broader range of conduct and a wider range of financial instruments, and it underpins the FCA’s supervisory expectations around market abuse prevention and detection.
Categories of Market Abuse We Investigate
Insider Dealing by Employees
The most common trigger for a market abuse investigation in a regulated firm is the identification of suspicious trading patterns by an employee or a connected person in the period before a material corporate announcement. The key questions are: did the person have access to the inside information; did their trading pattern change in a way that is consistent with knowledge of that information; and is there any innocent explanation for the trading that can be established from the available records.
Tipping Off
Disclosure of inside information to a person who then trades, or who passes the information further along a chain. Tipping can be deliberate — a trader who passes information to a friend or family member who trades on it — or inadvertent: a banker who discusses a deal in a social context without realising that the information constitutes inside information, or that the person they are speaking to will use it. The investigation of tipping requires establishing the information flow: who had the information, who did they tell, and what did the recipient do with it.
Front Running
Trading in a security ahead of a client order that the trader knows will move the market. The trader uses knowledge of the impending client order — which is information obtained in confidence through their employment — to position themselves to profit from the price movement the order will cause. Front running is both a market abuse offence and a serious breach of the trader’s fiduciary and employment obligations to the client.
Layering and Spoofing
Placing orders with no intention of executing them, designed to create a false impression of market depth or direction that influences other participants to trade, and then cancelling the orders before execution. Layering and spoofing investigations are data-intensive: they require systematic analysis of order entry, modification, and cancellation patterns across large volumes of trading activity to identify the specific conduct that constitutes manipulation.
Benchmark Manipulation
Conduct intended to influence the level of a benchmark — an interest rate, a currency fixing, or a commodity price — in a way that benefits the manipulator’s own positions. Following the LIBOR and FX benchmark manipulation cases of the 2010s, benchmark manipulation is a major focus of regulatory and criminal enforcement in the UK and internationally.
The Investigation Methodology
Market abuse investigations are primarily digital investigations: the evidence is in the data, and the data is held in the firm’s own systems and in the records of external counterparties, exchanges, and market infrastructure providers. The investigation methodology reflects this:
Trading Pattern Analysis
Systematic analysis of the trading activity of the individuals under investigation, across all relevant accounts and instruments, over the period of interest. The analysis establishes: the specific trades executed; the timing of those trades relative to the information or announcement at issue; any deviation from the individual’s historical trading patterns; and any correlation between the trading and the specific information or events relevant to the concern.
Information Access Investigation
Establishing what information the individual had access to, when, and through what channels. This requires mapping the information flows within the firm: who was on the transaction team, who had access to the relevant deal room or project code, who was copied on the relevant communications, and when each individual first had access to the specific information that constitutes inside information. The information access investigation is the foundation of the trading pattern analysis: trading before access to inside information cannot be insider dealing; trading after access requires explanation.
Communications Review
Systematic review of the individual’s communications during the relevant period: email, instant messaging, voice recordings where available, and any other communication channels used for business purposes. The communications review is looking for: explicit reference to inside information in communications with external parties; discussions of trades in a context that suggests advance knowledge; and any evidence of tipping — the disclosure of material information to someone outside the firm who is in a position to trade on it.
The increasing use of personal messaging applications — WhatsApp, Signal, Telegram — for business communication has made communications review more complex. Where there is a basis to believe that relevant communications occurred on personal devices or personal messaging applications, the scope of the review needs to address this, and the investigation must be conducted within the applicable legal framework for accessing personal communications.
External Data Analysis
Where the inside information relates to a specific transaction or corporate event, analysis of the broader market and the trading activity of other connected parties may be relevant: whether other individuals who had access to the same information traded similarly, whether unusual options activity preceded the announcement, and whether the trading pattern identified in the internal review is consistent with a pattern of abuse or with alternative explanations. This external analysis may draw on data available from market infrastructure providers and, in some cases, from the FCA’s own market monitoring systems.
Responding to an FCA Market Abuse Inquiry
Where the FCA has opened a market abuse investigation, the firm’s internal investigation serves several critical functions that are addressed in our dedicated article on FCA regulatory investigation support. In the specific context of market abuse:
Establishing the facts before the FCA does: understanding what happened allows the firm to engage constructively with the FCA from a position of genuine knowledge, to correct any initial characterisation of the conduct that may be inaccurate, and to identify any exculpatory factors early rather than discovering them under regulatory pressure.
Identifying and addressing control failures: the FCA’s market abuse inquiry will focus not only on the specific conduct but on the firm’s market abuse detection and prevention systems. An internal investigation that identifies specific control failures and demonstrates credible remediation is central to the cooperation narrative that mitigates the regulatory outcome.
Supporting individual defence preparation: individuals who are the subject of the investigation need their own legal representation, and the internal investigation findings — subject to the appropriate handling of privilege — provide the evidential foundation from which individual defence preparation can begin.
Frequently Asked Questions
What is the difference between civil and criminal market abuse proceedings?
Civil market abuse proceedings are brought by the FCA under FSMA and do not require proof beyond reasonable doubt; the standard is the balance of probabilities, and the FCA can impose unlimited financial penalties without involving the courts directly. Criminal proceedings for insider dealing under the CJA 1993 require proof beyond reasonable doubt, are brought through the criminal courts, and can result in imprisonment as well as financial penalties. The same conduct can in principle give rise to both civil and criminal proceedings, and the coordination between the two is a significant strategic consideration in any significant market abuse case.
Can personal devices be searched as part of a market abuse investigation?
Personal devices can be subject to investigation where there is a basis to believe they contain relevant evidence and where the individual consents, or where a court order requires their production. The FCA can require the production of documents on personal devices using its s.165 powers. For an internal investigation, the position depends on the firm’s policies, the individual’s employment contract, and the specific circumstances. Bond Rees advises on the scope of any device investigation and ensures that it is conducted within the applicable legal framework.
How far back does a market abuse investigation typically go?
The relevant period is the period during which the inside information existed and during which the trading activity under scrutiny occurred. For a specific transaction, this may be a period of weeks or months. For a pattern of manipulation, the relevant period may extend over years. The FCA’s limitation period for civil market abuse proceedings is generally five years from the date on which the FCA first has information sufficient to bring proceedings, which can be a significantly longer period than the underlying conduct.
Investigating a market abuse concern? Contact Bond Rees for expert financial crime investigation support.
