The Financial Conduct Authority (FCA) has secured convictions against brothers Matthew and Nikolas West for insider dealing, resulting in suspended prison sentences and a £280,000 confiscation order under the Proceeds of Crime Act 2002. The experienced traders unlawfully disclosed and traded on confidential inside information related to capital raisings for AIM-listed companies, generating £44,164 in profits between 2016 and 2020.
This case, uncovered through market surveillance, underscores the FCA’s ongoing commitment to detecting and prosecuting market abuse. It also reinforces the importance of robust financial crime systems and controls in preventing insider dealing.
Identified Failures from the Case Study
- Unlawful Disclosure of Inside Information
Matthew West received legitimate inside information through broker ‘wall crossing’ arrangements under confidentiality agreements. However, he unlawfully disclosed this information to his brother, Nikolas West. This disclosure breached the Market Abuse Regulation (MAR EU) No. 596/2014 (as incorporated into UK law post-Brexit), which prohibits the unlawful disclosure of inside information except in the normal exercise of employment, profession, or duties (Article 10, MAR).
The failure to restrict and control access to sensitive information allowed coordinated trading across multiple instances.
- Trading on Inside Information
Following the disclosure, the brothers executed trades shortly thereafter, in clear contravention of insider dealing provisions under MAR (Article 8). Text message evidence revealed that they discussed maximising profits before public announcements, demonstrating a deliberate exploitation of non-public, price-sensitive information.
This highlights vulnerabilities in how firms manage wall-crossing protocols. It is vital that recipients of inside information are clearly informed of its nature and are bound by robust confidentiality obligations.
- Lack of Detection and Reporting
Although the misconduct was detected via the FCA’s surveillance systems, the case illustrates potential shortcomings in firm-level monitoring. Without effective pre- and post-trade surveillance controls, insider dealing may go undetected.
This contravenes the FCA’s Senior Management Arrangements, Systems and Controls sourcebook (SYSC), which requires regulated firms to establish and maintain effective systems and controls to counter the risk of financial crime, including market abuse.
Common Themes in Financial Crime Failures
The West brothers’ case reflects broader themes in insider dealing and market abuse, such as inadequate handling of inside information, insufficient surveillance and poor governance.
Firms should recognise the significance of identifying and assessing the risks of being used for insider dealing, considering products, services and clients. Emerging risks, like those in AIM markets or involving professional traders, require bespoke approaches rather than generic models.
Under both MAR and SYSC, firms are required to have proportionate and effective systems in place to detect and prevent market abuse. This includes:
- Behavioural surveillance;
- Clear escalation and reporting processes; and
- Record-keeping of communications and trade rationale.
Failure to meet these standards may result in enforcement action and reputational damage.
Compliance Lessons for Regulated Firms
The FCA’s action signals a proactive stance on market abuse, with key takeaways including:
- Conduct and Review Risk Assessments;
- Implement and Test Controls;
- Provide training to employees on identifying insider dealing red flags and MAR obligations;
- Ongoing employee trading monitoring; and
- Maintaining comprehensive records to demonstrate compliance and facilitate investigations.
The West brothers’ convictions serve as a stark reminder of the financial, legal and reputational risks of insider dealing. As financial crime threats evolve, with increasing complexity in markets like AIM, firms must adopt proactive measures, integrating advanced tools like behavioural analytics and automated surveillance with strong governance frameworks.
How Complyport Can Help
Complyport offers tailored solutions to strengthen financial crime and market abuse frameworks, helping firms develop appropriate systems and controls to address and mitigate risks. Our services include:
- Market Abuse Risk Assessments and Gap Analyses;
- Financial Crime Audit and Systems Reviews;
- Policy Development and Controls Implementation for Insider Dealing;
- Surveillance and Transaction Monitoring Support;
- Staff Training on Financial Crime, Market Abuse, MAR, and SYSC Requirements.
Book a Meeting with a Complyport SME
To learn how to enhance your firm’s financial crime strategies and ensure compliance with FCA expectations, book a consultation with a Complyport Subject Matter Expert today.
Ask ViCA, your Virtual Compliance Assistant.
Access instant answers on regulatory changes.
Claim your complimentary 20 queries today! Register here: https://vica.chat
