Market Abuse and the Risk to the Financial Markets

Abstract

The Financial Services and Markets Act 2000 (FSMA 2000) gave the Financial Services Authority (FSA) four statutory objectives of maintaining market confidence (Section 3), raising public awareness (Section 4), protecting the consumer (Section 5) and reducing financial crime (Section 6). An additional statutory objective (Section 3A) to maintain financial stability in the financial system was added by virtue of the Financial Services Act 2010 (Section 1(3)). One of the most novel and innovative parts of the new legislation is the market abuse regime contained in Part VIII of the FSMA 2000, and amended by the Market Abuse Directive. The broad aim of which is to ensure the integrity and probity of the financial markets while at the same time protecting consumers of financial products, lacking in previous regimes. As such the Market Abuse provisions within the FSMA, enforced by the FSA, arguably support at least two of the objectives, market confidence and systemic risk, and protecting the consumer, while also further supporting the financial crime objective. The market abuse regime was enacted to run parallel to the criminal provisions of insider dealing included in Part V of the Criminal Justice Act, and to complement the market manipulation provisions of the FSMA (Section 397), which replaced the older provisions of the Financial Services Act 1986. The global financial crisis that emerged through 2007 and into 2008 has precipitated major reforms of the regulatory structure with the FSA replaced by the Financial Conduct Authority (FCA), and the replacement of the original statutory objectives, with the financial crime objective replaced by an integrity objective. The core of the market abuse regime forms part of the risk-based approach common in much of the FSA’s and now the FCA’s approach to financial services regulation. The regime guards against the risk that misuse of information by market participants will lead to a lack of integrity in the UK’s financial markets and thus dissuade users from engaging with such an important component of the UK economy. This chapter will assess how the market abuse regime of the FSMA attempts to deal with the risk posed to financial markets by the misuse of information by market participants. The chapter will analyse the risks posed by the misuse of information, with some focus on insider dealing under both the civil and criminal provisions. The purpose is to assess whether the regime in its amended form is capable of ensuring that the UK financial markets are free from abusive practices and continue to operate in a fair and open manner.

The original version of this chapter was revised. An erratum to this chapter can be found at https://doi.org/10.1057/978-1-137-47384-4_13