April 24, 2023
On 20 April 2023, HM Treasury published a draft statutory instrument ("draft SI") that will amend Schedule 2 to the Criminal Justice Act 1993 (“CJA”) and revoke various statutory orders that have been made under the CJA, so that the type of securities and the markets on which they must be traded in order for any insider dealing in them to be criminalised under the CJA, will now be much more closely aligned with those applicable under UK MAR. The draft SI will come into force 21 days after it was made and so on or around 11 May 2023.
The UK has both a criminal and a civil market abuse regime, with insider dealing being criminalised under the CJA and being prohibited - with penalty and other sanctions that can be imposed for breach - by the FCA. The CJA criminal regime was introduced well before the civil regime was, which was initially laid down in the Financial Services and Markets Act 2000 ("FSMA") and later revised by the EU Market Abuse Directive ("MAD") and then the EU (now UK, following Brexit) Market Abuse Regulation ("MAR"). The definitions of markets on which criminal insider dealing may take place and the definition of securities that are relevant for the criminal offence, under the CJA have not kept track with the corresponding definitions applicable to the civil offence or prohibition of insider dealing that have evolved under FSMA, MAD and MAR. The draft SI provides a long overdue update to this confusing divergence between these two key definitions.
The CJA insider dealing offence requires that the relevant dealing involves a type of security specified for the purposes of the offence (set out in Schedule 2 to the CJA (or as specified by the Treasury)) and that it takes place on a "regulated" market - which does not have the same meaning as "UK regulated market" for the purposes of UK MiFIR - as specified by the Treasury.
The definitions of securities and regulated markets relevant for these purposes have not been updated since 2002, with result that the list of securities covered by the CJA offence is currently narrower than the range of securities caught by the insider dealing and other market abuse prohibitions under the UK MAR civil offence regime. In addition, the list of regulated markets relevant for the CJA offence is much narrower than the markets relevant under UK MAR. The draft SI brings the list of relevant CJA securities and markets into line with those covered by UK MAR but adds three additional markets for the CJA offence that are not relevant markets for the purposes of the UK MAR prohibitions.
New CJA insider dealing securities
These will be expanded to comprise securities defined in UK MiFIR (see Schedule 2, Financial Services and Markets Act 2000 (Regulated Activities) Order 2001) and so will now include currency options, certain swaps and exchange traded funds. These CJA securities will also include those “derivative-type” securities that are caught by MAR – i.e., a security which is not itself traded on a market that is relevant for the purpose of the CJA offence but the price or value of which depends on, or has an effect on, the price or value of a security that is traded on a relevant market.
New CJA 1993 “regulated” markets
Currently, the list of regulated markets relevant for the CJA offence captures 49 markets, many of which are no longer in operation (or now operate under a different name). This list will be replaced by the list of markets relevant for UK MAR and so include UK, EU or Gibraltar regulated, MTF or OFT markets. As a result, the list of markets relevant for the CJA offence will - according to the explanatory memorandum published with the draft SI - be expanded to include 130 regulated markets, 230 MTFs and 75 OFTs. Since these markets are already in scope for UK MAR, the Treasury does not expect this to be a problem for most firms and market practitioners.
In addition, NASDAQ and SIX Swiss Exchange, which are currently included in the list of CJA “regulated” markets, will continue to be included as markets relevant for the CJA offence and NYSE will also be added. The Treasury says this is to allow the FCA to take action against “the persistent trend of organised crime groups recruiting UK insiders to disclose inside information relating to securities traded on these markets”. There is no suggestion (and probably no obvious rationale) at this stage that these three additional markets will be added to the list of markets relevant for UK MAR.
These changes are long overdue and uncontroversial. They are to be welcomed as a very necessary updating and harmonisation - and so, to some extent, a very useful simplification - of the UK's insider dealing regime.