The weeks following the then chancellor of the exchequer Kwasi Kwarteng's so-called "mini" Budget’ saw a torrent of negative news stories for the UK government.
Among the most striking of these were reports claiming that, during the week prior to the announcement, a group of hedge fund managers attended a dinner after which they ‘shorted’ the pound and government bonds.
Hedge fund managers reportedly profited from sterling’s dramatic plunge in value shortly after the fiscal statement. A separate report alleged Kwarteng attended a champagne reception with hedge fund bosses hours after his announcement.
Questions have been asked over whether this could have led to insider trading. Labour MP Tulip Siddiq asked the Financial Conduct Authority to investigate ‘whether it is possible that any leaks or information… contributed to the collapse of the pound’.
Jake Berry, Conservative party chairman, denied to Sky News early in October that the chancellor had given details of future fiscal plans to people at the first event.
But could what has been alleged really point to ‘insider dealing’? How does the FCA investigate such matters? And what steps should professional advisers take to ensure they do not fall foul of insider trading law?
What is insider dealing?
Insider dealing (also known as insider trading) is a criminal offence contrary to Part V of the Criminal Justice Act (CJA) 1993. It is also a regulatory or civil offence under the Market Abuse Regulation.
Allegations of insider trading are investigated by the FCA, which also acts as prosecutor in criminal cases. FCA investigations can be triggered in a number of ways, including by the FCA’s own market surveillance systems, suspicious transaction and order reports, whistleblowing or media allegations.
At the heart of insider dealing – whether criminal, regulatory or civil – is the possession of ‘inside information’, the precise definition of which is crucial to determining whether there is an offence (and is dealt with in detail below).
In broad terms – and subject to various specific defences – anyone who possesses inside information is prohibited from doing any of the following:
- Dealing or trading in relation to the information;
- Encouraging or recommending another person to deal; or
- Disclosing that information (other than in the proper performance of the functions of one’s employment/office/profession).
The criminal offence of insider dealing can be tried in either the magistrates’ court or Crown Court. In practice, it is always heard in the latter, in front of a jury. Anyone found guilty of insider dealing faces a maximum of 10 years’ imprisonment. They can also expect the proceeds of their criminality to be confiscated.
