On 15 June 2023, The Insider Dealing (Securities and Regulated Markets) Order 2023 (the “2023 Order”) came into force. The 2023 Order seeks to align certain outdated aspects of the UK’s criminal insider dealing regime under the Criminal Justice Act 19931 (the “CJA 1993”) with the civil regime set out in the UK Market Abuse Regulation2 (“UK MAR”), which has been regularly updated to reflect developments in the market.
As a result of the 2023 Order, from today, 15 June 2023, a wider selection of financial instruments, including currency options, credit default swaps and units in collective investment undertakings (“UCITS”), such as exchange traded funds, now fall within the scope of the criminal offence of insider dealing. Further, the criminal regime now applies to securities traded on any UK, EU or Gibraltar regulated market, multilateral trading facility and organised trading facility, as well as an additional three markets that are not currently in scope for UK MAR. The civil regime remains unchanged.
The UK insider dealing regimes
Insider dealing is both a civil offence and a criminal offence in the UK.
The civil offence of insider dealing is set out in UK MAR, as supplemented by the Financial Services and Markets Act 2000 (Regulated Activities) Order 20013 (“RAO 2001”). Under the civil regime, an individual is prohibited from engaging, or attempting to engage, in insider dealing, and from recommending or inducing another person to engage in such activity. Insider dealing arises where an individual possesses inside information and uses that information to acquire or dispose of financial instruments, to which that information relates. Schedule 2 of RAO 20014 sets out what amounts to a financial instrument.
The criminal offence of insider dealing is set out in the Financial Services Act 20125 and the CJA 1993. Under section 52 of the CJA 1993, a criminal offence of insider dealing is committed where (i) an individual has information, as an insider, and deals in securities that are price-affected in relation to that information; (ii) encourages another person to deal in such securities; or (iii) discloses that information, otherwise than in the proper performance of his employment, office or profession.
An insider is defined as an individual who holds information which is, and which they know is, inside information, and which has been obtained, and which they know has been obtained, from an inside source. Inside information means information which relates to particular securities, or a particular issuer of securities, and which is specific or precise, has not been made public, and, if it were to be made public, would be likely to have a significant effect on the price of those securities.
Updates to the regime
Until 15 June 2023, the CJA 1993 was supplemented by the Insider Dealing (Securities and Regulated Markets) Order 19946 (the “1994 Order”). The 1994 Order set out (i) the securities to which the criminal offence of insider dealing applied; (ii) conditions applicable to securities in order for these to fall within the scope of the CJA 1993; and (iii) the regulated markets to which the CJA 1993 applied, including the regulated markets regulated in the UK.
The 2023 Order replaces the 1994 Order and amends the CJA 1993 as follows:
- the list of securities, to which the criminal offence of insider dealing applies has been updated to align with the list of financial instruments relevant for the purposes of UK MAR (i.e., those contained in Part 1 of Schedule 2 of RAO 2001). Additional securities now caught by the criminal regime include currency options, credit default swaps and units in collective investment undertakings, such as exchange traded funds; and
- regulated markets, multilateral trading facilities and organised trading facilities are now defined by reference to the definitions in UK MAR to include approximately 130 regulated markets, 230 multilateral trading facilities and 75 organised trading facilities, as well as the NASDAQ, NYSE and SIX Swiss Exchange (which are not currently in scope for UK MAR).
While today’s updates to the criminal regime are aimed at aligning the offence under the CJA 1993 with that under UK MAR, they indicate that tackling insider dealing remains a priority for the Financial Conduct Authority (the “FCA”) and an increase in enforcement action is expected during 2023 (in its 2021/22 Annual Report,7 the FCA notes that it currently has 71 open investigations into suspicions of insider dealing).
Firms that comply with UK MAR will already be in compliance with the amended criminal regime. Accordingly, the Treasury has commented that it does not expect the entry into force of the 2023 Order to cause issues for most firms and market practitioners. However, firms should ensure that they are in compliance and that their policies and procedures are updated to reflect the changes to the criminal regime, in particular, to reflect the additional trading venues and securities now caught as a result of the changes made by the 2023 Order.
- Criminal Justice Act 1993 is available here.
- UK Market Abuse Regulation is available here.
- Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 is available here.
- Schedule 2 of RAO 2001 is available here.
- Financial Services Act 2012 is available here.
- Insider Dealing (Securities and Regulated Markets) Order 1994 is available here.
- FCA 2021/2022 Annual Report is available here.