FCA fines independent traders £280,000 for insider dealing
The FCA has penalized two brothers, working as independent traders, with a large fine and prison sentences for insider dealing. Regulators are not stopping in their pursuit to weed out financial crime, calling on firms to implement the correct surveillance tools.
Written by a human
In brief:
- The Financial Conduct Authority has sentenced two brothers for insider trading, as well as issuing a £280,000 penalty
- The case is a stern reminder that, as the regulator focuses in on financial misconduct, firms need robust surveillance over both trading activity and communications
- Curbing market abuse is not just down to regulation, but a compliance culture and resilient surveillance infrastructures as well.
The Financial Conduct Authority (FCA) has fined two brothers £280,000 after convicting them of six counts of insider dealing between 2016 and 2020. Matthew and Nikolas West were found to have misused confidential information acquired through legitimate broker contacts in order to profit from trades. Alongside the fine, the FCA’s hefty sentence also includes a 15 and a 6 months’ imprisonment (respectively), two year suspended prison sentences, and 200 hours of unpaid work.
This is more than another insider dealing case – it is a reminder that firms need to ensure they have a strong communications surveillance infrastructure in place to monitor for signs of misconduct.
From East to West, the FCA knows best
The West brothers were found to have used confidential information to coordinate and execute trades to generate a profit of over £44,000. While Matthew West received insider information via legitimate broker communications, he then unlawfully disclosed this information to his brother. The FCA’s investigation found messages between the pair around how to best trade on this information.
Concerningly, the West brothers were not insiders at a bank or larger firm, but were independent day traders, raising questions around the potential for those working within a bank or larger firm having access to even more sensitive information to act on, and the need for stringent surveillance and compliance measures to counter this.
The conversations that shape trading patterns are essential in understanding the conversations that shape trading patterns, and having access to these conversations with their wider context, is vital in understanding how they may lead to criminal activity. Ensuring these conversations are appropriately captured and monitored not only helps in identifying potential risk in action, but in building proactive surveillance strategies to spot warning signs before risks can evolve into misconduct.
The FCA is no stranger to a case of this kind, and in fact has made its messaging around its expectations of firms clearer to reflect this. For example:
- Under the UK Market Abuse Regulation, firms must detect and prevent insider dealing and market manipulation, and maintain insider lists to ensure timely and accurate disclosure of inside information.
- SYSC 10A FCA Handbook: All client and trade-related communications must be recorded, stored securely, and monitored.
- Market Watch 79:Outlined the widespread prevalence of weak surveillance systems, where alert systems fail to appropriately flag misconduct and risk, and monitoring off-channel communications on channels such as WhatsApp.
The regulator has its eye on the ball, and firms must be able to evidence that they are taking the necessary steps to monitor for, and control, insider dealing and associated misconduct. This is not just to prevent monetary and reputational damage for firms, but to weed out financial misconduct and illegal activity to create more compliant cultures.
Firms need to take action
While the West brothers were working independently, and not under the oversight of a firm’s compliance and surveillance teams, their case is a reminder that insider dealing is still a risk, and that firms must take staps to reduce, mitigate, and control risk:
- Ensure data from all business communications channels is being captured comprehensively, from WhatsApp to Text/SMS to Teams.
- Once ingested, enact effective monitoring of communications for the telltale signs of risks, such as suggestions to “talk about this offline” or “use another channel”
- Regularly test and refine alerting processes to ensure they pick up any unusual behavior, and leverage AI0enabled solutions to context and sentiment within communications and capture even the most covert instances of misconduct.
- Foster a compliance-first culture, where senior managers support and emphasize the importance of transparency and accountability through putting compliance first and leading by example.
Regulators, globally, are prioritizing enforcement centred around financial crime and misconduct that leads to consumer harm. Therefore, firms must implement tools and revisit their compliance strategies to ensure they avoid such investigations and are acting to ensure consumer trust.
The FCA wants to see that firms are not just trying to prevent insider trading and illegal activity, they now want to see evidence that firms are using every tool available to detect and stop this from occurring in the first place. From insider trading to off-channel communications and non-financial misconduct, comprehensive, innovative technology is increasingly helping firms fight the good fight.
Global Relay’s AI-enabled surveillance solution allows firms to combine powerful investigation capabilities to review messages in their entirety and focus on true threats.
