The financial services sector has been proven to be of vital importance to the UK’s economy. This was demonstrated during the 2008 crisis, which saw a number of leading financial institutions brought to their knees. Following a range of detailed investigations into professional practice by institutions, and the actions of individuals working within them, there has been a marked change in the attitude of regulators in dealing with instances of market manipulation and abuse.
As a direct consequence of the damage done to the UKs economy, the Financial Conduct Authority (FCA) has been empowered by government to bring a range of measures against corporate bodies and individuals that are found to have risked destabilising or damaging the financial markets. At Lewis Nedas, our team of market abuse defence lawyers are routinely sought to provide advice and representation on this increasingly complex and sophisticated area of the law.
How does the law relating to Market Abuse work?
The law relevant to market abuse is set out in the Financial Services and Markets Act 2000 (FSMA). The definition for the term ‘market abuse’ is deliberately drafted in broad terms: it relates to any kind of behaviour that attempts to circumvent accepted practices, or create a false or misleading impression in relation to trading or working in the financial markets.
It should be pointed out that the law in respect of market abuse not only concerns an individual actively participating in it. The FCA will be entitled to find an individual guilty for market abuse where they either take action, or refrain from taking action that in some way encourages someone else to participate in activities which amounts to market abuse. In practice, the commission of market abuse tends to relate to a number of different activities, including:
- Forex fraud
- Libor manipulation
- Insider trading
- High frequency trading
It is important to be aware that the line dividing what will and what will not be deemed as market abuse is a fine one: regulators are empowered to provide detailed guidance to organisations and individuals working in financial services and markets on what activities will be deemed to be illegal. Much will depend on the activities in question, the context in which they are pursued and, in some cases, the person that carries them out.
How is the law enforced?
The regulator, the Financial Conduct Authority (FCA), enforces the law in respect of financial services.
The FCA obliges organisations that work in the field of financial services to actively contribute to regulation. They are required to ensure that resources are provided to ensure that those involved, internally, in guarding against the commission of market abuse are trained in how to identify it. Furthermore, these individuals are required to provide the FCA with a report on activities, where they believe that a particular transaction or trade is particularly suspicious.
It is important to be aware that a ‘suspicious transaction’ is one where there are reasonable grounds for one to suspect the commission of market abuse. This ‘reasonableness’ test is deliberately broad, widening the scope for conduct within which questionable activities will be caught. It is on the basis of these reports that the FCA will decide whether or not to pursue an investigation into the activities in question.
Is there no defence to an allegation of market abuse?
The FCA is acutely aware of the fact that the work of those involved in financial markets is particularly complex, and that there will be instances of abnormal or unusual activity from time-to-time.
The FCA is not permitted to impose any sanction against an individual for market abuse, where it has been provided with information that there are reasonable grounds for it to be satisfied that:
- The individual concerned had reasonable grounds to believe that his behaviour did not, in any way, amount to market abuse; or
- The person in question took all reasonable precautions and took the necessary steps to avoid behaving in a way that would leave him vulnerable to an allegation for being involved (in any way) with market abuse.
What are the penalties for market abuse?
If the FCA conducts an investigation into suspicious activities and finds evidence of market abuse it has a range of sanctions at its disposal, including:
- issuing a statement that the individual that it has investigated has been involved in market abuse; or
- imposing a fine on those for having been involved in market abuse – normally via a court order;
- In instances of the abuse of financial benchmarks under the Financial Services Act 2012, the FCA is empowered to institute criminal proceedings against an individual, which on a successful prosecution could result in a period of imprisonment.
The sanctions that the FCA can issue against an individual are significant, and can have a grave impact on an individual’s life and future career. It is important that if you are facing an investigation by the FCA for market abuse, that you are represented by experienced lawyers that are familiar with the rules and procedure involved.
Get advice from specialist Market Abuse Defence lawyers
At Lewis Nedas, our team of Market Abuse defence lawyers are among the most experienced in the UK. We are regularly involved in representing the interests of our clients in FCA investigations, and where necessary, in the courts. Our skills and knowledge in the sphere of defending clients alleged to have committed market abuse affords us great insight, allowing us to approach each case strategically with a view to securing the best result possible for our client.
We understand the important evidential requirements that the FCA must meet and are adept at testing its case to expose any vulnerabilities or inconsistencies in reasoning, supported by convincing evidence. If you are facing an investigation by the FCA and are concerned over what this involves, contact our team now. Lewis Nedas are among the City’s leading providers of legal advice in respect of market abuse, providing clients with specific legal advice to meet their needs. Contact us now.
It really is apparent that the FCA are doing more than 'baring their teeth' when it comes to insider dealing and market manipulation. They have secured at least eleven recent convictions (according to their website) and have a number of criminal trials and investigations pending. Not as many as their American cousins over at the SEC, but the FCA regard their track record as a respectable one, particularly because this is a notoriously difficult area to prosecute.
They tend to generally favour the regulatory route i.e. the Regulatory Decisions Committee (RDC) and the Upper Tribunal. See their recent success with Einhorn and Greenlight Capital (which also dealt with compliance issues).
We have over thirty years' experience dealing with regulators and prosecuting authorities. Largely because of Jeffrey Lewis's previous career in the City, he understands the mind-set of both of those who work there and those that regulate it. He and Miles Herman acted for one individual prosecuted in the City Slickers/Mirrorgate case, and Miles currently advises another individual pending investigation in what the FCA have billed as their largest investigation to date into this area.
Additionally, we have the leading edge over many of our corporate City competitors because we also have thirty years of unrivalled success when defending white collar crime.
We advise on compulsory requests for documentation / information / interviews made by the FCA and can assist with those who are potential witnesses.
Contact our Specialist Insider Dealing & Market Manipulation/Abuse Solicitors
For further information or to speak to one of our top Insider Dealing & Market Manipulation/Abuse solicitors please telephone us on 020 7387 2032, complete our online enquiry form, or contact Jeffrey Lewis, Siobhain Egan, Miles Herman, or Keith Wood.