On 8 September 2025, the FCA issued Market Watch 83, which shared observations from a series of reviews of corporate finance firms that provide advisory services to small and mid-cap companies, with a specific focus on the handling of inside information.
The review focused on three areas, all of which along with the FCA’s observations are detailed below:
1. Market Soundings
Under the Market Abuse Regulation (“UK MAR”), market soundings are a legitimate behaviour typically employed by issuers (or brokers appointed by the issuers) to gauge interest in a transaction before its announcement. Whilst a legitimate practice, given the sensitivity of the information possessed by the Disclosing Market Participant (“DMP”), the FCA has had a long-standing concern that failure to implement sufficiently robust controls could result in firms disseminating inside information to firms or individuals that do not have a legitimate need to receive this information (i.e. those that are not Market Sounding Recipients (“MSRs”)). The FCA’s review found the following:
- DMPs extended their market soundings to a large number of MSRs without considering their appropriateness;
- Some firms had a clear governance process in place whereby a senior employee / committee approved the initial MSR list and for every firm or individual added thereafter; and
- Whilst a number of MSRs had gatekeeper arrangements in place (i.e. a designated point of contact in place to receive market soundings), DMPs included sensitive information related to the transaction to a wider audience after the gatekeeper had consented to receive the information without any documentation / rationale to support the rationale for providing them with this information.
2. Control Environment In Smaller Firms
The FCA reinforced its expectation of firms to continuously review the appropriateness not only of their systems and controls, but of their broader compliance and governance arrangements. The FCA noted that smaller firms appeared to be susceptible to organisational and cultural factors that can present specific compliance risks; which included:
- Overfamiliarity between the Compliance function and the business presented a risk of inadequate challenge;
- Reliance on unwritten and informal policies and procedures which could result in inconsistencies and give rise to non-compliance conduct; and
- Inability to implement effective information barriers if a firm is sharing a small office space.
To help manage the above risks, the FCA noted that some firms had well-documented policies and procedures in place that were readily available to staff (inc. the requirement for staff to attest that they have read and understood these documents) and having clear governance arrangements in place to ensure the independence of the compliance function.
3. Personal Account Dealing
In Market Watch 62, the FCA highlighted mechanisms for firms to successfully manage compliance risks associated with personal account dealing. Despite this, the FCA found the following:
- Staff trading without pre-approval;
- Compliance not undertaking checks before approval being granted;
- Staff selling positions in contravention of the firm’s holding period; and
- Compliance not follow up on personal account dealing breaches.
The FCA reiterated that implementing robust controls surrounding personal account dealing is essential for maintaining market integrity. Not only should senior members of staff comply with these policies, they should assume responsibility for promoting and enforcing a compliance culture within the business.
Key Takeaways
- If your firm receives market soundings, it is imperative that you appoint a gatekeeper to minimise the risk of inside information being unlawfully disseminated throughout your organisation;
- Irrespective of the size of your firm, ensuring independence and fostering a culture to encourage compliance challenge is imperative for firms to consistently demonstrate compliance with FCA requirements;
- Although staff within your firm may have a good understanding of your firms policies / procedures, if these are not formally documented and accessible to staff, they do not exist in practice; and
- Whilst the FCA’s rules on personal account dealing aren’t prescriptive, it is clear that the FCA has certain expectations of firms and their controls related to PA Dealing, including the introduction of a pre-approval process and a minimum hold period to mitigate the risk of insider dealing.
If you would like to discuss this Market Watch or have any questions relating to the FCA’s findings and how they may impact your firm, please get in touch with our regulatory team below.
