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FSA Enforcement Division increasing insider dealing and 'boiler room' investigations

Insider Dealing


The FSA is pursuing its biggest ever crackdown on market abuse including several prosecutions for insider dealing.

Margaret Cole, the FSA's director of enforcement admits that the FSA inherited an offence for which the Serious Fraud Office and the Department of Trade and Industry had struggled to gain successful criminal prosecutions pre 2001: 'It was seen as a victimless crime; it was seen as not doing any harm. It was extraordinarily complex and difficult to get juries to understand and convict on.'

She told the Law Society Gazette the previous absence of insider-dealing prosecutions was due to the convention of using civil proceedings before she joined the FSA in 2005. 'The assumption was that, with civil proceedings, insider dealing is easier to prove and proceedings are more straightforward because of the lower burden of proof. But we were not finding that the [Financial Services and Markets Tribunal] required a lower burden of proof. Most importantly, we thought we needed to get tougher on the market, and we would do this by starting criminal proceedings. The idea was to make people more scared of us.'

The new focus on prosecutions comes at a time when according to the FSA suspicious share movements have been identified ahead of 29 per cent of all take over and merger announcements. The FSA uses the SABRE (Surveillance Analysis of Business Reporting) system for detecting and deterring market abuse.

The chief executive of the FSA, Hector Sants also warns that firms should have in place their own systems of identifying market abuse: 'It is incumbent on the senior management of firms to guard against the risk that their staff will commit or facilitate market abuse and I would hope that our common desire to promote the UK as an efficient, orderly and fair market will ensure they do so.'

The Law Society Gazette also reports that that the FSA is to recruit 20 further investigators into Enforcement to investigate 'boiler rooms' to deal with their increasing workload.

FSA specialist from Irwin Mitchell Solicitors, Sarah Wallace, commented:

Those who work in the financial sector should be vigilant that they and their staff are not at risk of committing or facilitating market abuse or insider dealing. In the future there will greater FSA scrutiny of systems and controls and senior management responsibility. For those who fail to meet the required standards there will be greater risk of sanctions - against both individual and firms.