FCA Warns Of Insider Trading Danger In Home Offices

By Najiyya Budaly
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Law360, London (October 12, 2020, 4:23 PM BST) -- The risk that inside information can end up in the wrong hands has been heightened with workers shifting to home offices during the COVID-19 crisis, the Financial Conduct Authority warned on Monday as it urged companies to put controls in place.

Julia Hoggett, director of market oversight at the City watchdog, said that the lack of separation between work and home life means that staff who have access to inside information must be more cautious.

Such sensitive information could affect a public company's share price, so businesses must create barriers to ensure that their employees do not reveal confidential data to their partners or flat-mates while working from home, Hoggett said. Employees have been working at home since March, when Prime Minister Boris Johnson announced a U.K.-wide lockdown in response to the coronavirus pandemic.

"The fundamental need for institutions to ensure that they have appropriate controls over inside information and effective information barriers is even more critical at times like these," Hoggett said in an online speech delivered Monday

"It is absolutely the case that this risk has always existed, but, when the separation between work and home life is perhaps harder for some people to navigate, it may be all the more important and acute," she added.

Hoggett said that arrangements to prevent market abuse must be the same for staff working in offices and from home. Any person or business that trades with the advantage of inside information, which has not yet been made public to other shareholders, is guilty of market abuse.

"At a time where capital-raising activity is vital to fuel much needed economic activity, we must be crystal clear that behaviors that risk disrupting that activity will not be tolerated," Hoggett said.

The numbers of mergers is also increasing during the crisis as companies struggle to stay afloat, Hoggett said. Businesses should ensure that they have control of the increased volume of inside information that they generate as a result of more mergers and acquisitions.

Hoggett also said that what constitutes inside information may "change radically during the pandemic." Knowledge that the entire operations of a business are shutting or re-opening, whether a company is furloughing staff or the pace at which cash is being burned up might constitute confidential information that should not be used when employees make trades.

"This requires companies and their advisors to be alert to what information is likely to drive their valuation and to bring a potentially wider range of issues to be discussed at their disclosure committees," Hoggett said. "Equally important is how listed companies consider the controls over this information."

The FCA won a £1.6 million ($2 million) order this month against a fugitive businessman who was convicted of money laundering in Britain's largest-ever insider trading case. Richard Baldwin, who was convicted in July 2017, must pay the money back in full within three months or have his five-year jail sentence extended.

He was convicted as part of Operation Tabernula, the insider-dealing probe launched by the FCA in 2007.

--Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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