Newsletter on market abuse risks and related systems and controls at corporate finance firms, September 2025.
About this edition
In this Market Watch, we share our observations from a series of reviews of corporate finance firms that provide advisory and corporate broking services to small and mid-cap companies. These reviews focused on firms’ systems and controls for handling inside information about their corporate clients.
Background
Clean and well-functioning markets are essential to the UK’s attractiveness as a global financial centre. They promote investor confidence and support sustainable growth.
Our supervision of corporate finance firms identified a heightened risk of market abuse in firms that routinely possess inside information about their corporate clients.
Failure to properly control inside information increases the risk of market abuse. This can have an adverse impact on the integrity of UK markets and growth.
To address this risk, and as part of our strategy to improve market conduct, we have undertaken several ‘deep dive’ Market Abuse Regulation (UK MAR) system and control reviews of corporate finance firms over the last 5 years.
We assessed the effectiveness of firms’ UK MAR policies and procedures. In some cases, we also considered conduct relating to personal account dealing (PAD) and managing conflicts of interest.
We fed back to each firm to clarify our expectations and support good practice.
In this Market Watch, we comment on market practices identified in our reviews and areas where we saw a heightened risk. Our observations will help firms benchmark their systems and controls, and consider whether their own arrangements align with the standards expected.
Market Abuse Regulation: market soundings
Managing the number of Market Sounding Recipients (MSRs)
The number of Market Sounding Recipients (MSRs) that a firm contacts to market sound will vary depending on the transaction. Ordinarily, a broker acting as the Disclosing Market Participant (DMP) will work with the issuer to identify the investors or types of investors that need to be contacted to facilitate the particular transaction.
We saw DMPs extending their market soundings to a relatively large number of MSRs without a process for considering the appropriateness or the number of MSRs contacted.
A good practice we saw was a simple governance process where a senior employee or relevant committee approved the initial proposed list of MSRs, as well as any additions to it. This helped ensure:
- Firms considered in enough detail why each potential investor was included on the MSR list.
- There was a clear justification for sharing inside information.
We encourage firms to consider whether their policies and procedures help effectively manage the number of MSRs to control the flow of inside information.
Risk of unlawfully disclosing inside information during a market sounding
Some MSRs have ‘gatekeeper’ arrangements. Gatekeepers are the first point of contact for DMPs to approach and request consent to undertake a market sounding. As discussed in Market Watch 51 and 58, gatekeeper arrangements can ensure a consistent approach and minimise opportunities for leaks.
Despite these potential benefits, we identified a specific risk of unlawful disclosure after the DMP has received consent from the gatekeeper to undertake the sounding. We saw examples of DMPs sharing information with individuals at the MSR via email and the list of recipients on the email chain expanding without obvious control over who was added and whether they had been wall crossed by the gatekeeper.
Both DMPs and MSRs should consider and address the risk of unlawfully disclosing inside information by sharing market sounding information with individuals at the MSR that the gatekeeper has not wall crossed.
Sharing a standard set of deal-specific information
Once an MSR agrees to receive a market sounding, the DMP will share deal-specific information that may include detail such as the expected use of proceeds from a proposed placing. UK MAR Technical Standard 2016/960 Article 3(5) requires the DMP to make sure all potential investors sounded receive the same level of information.
We saw varying practices for identifying and agreeing the deal-specific information to share with the MSR.
Best practice involved the DMP using an approved script for all market soundings. This helped minimise differences in information shared in soundings.
Firms’ policies and procedures should make sure the same level of information is shared with every MSR.
Multiple brokers market sounding for a transaction
We observed a practice in which a broker (Broker A), appointed by an issuer to undertake market soundings for a potential transaction, asks another broker (Broker B) to market sound its own investor contacts. Sometimes, this happened without the issuer knowing that Broker A had involved a second broker.
UK MAR Article 11(4) provides DMPs with a safe harbour from the unlawful disclosure of inside information offence contained in UK MAR Article 10(1). Where a DMP complies with UK MAR Article 11(3) and (5), they are deemed for the purposes of Article 10(1) to have disclosed inside information in the normal exercise of their employment, profession or duties. UK MAR Article 11(1) provides a list of the market participants that can conduct market soundings. This includes a third party acting on behalf or on the account of an issuer.
In the example above, Broker A is appointed directly by the issuer and falls within scope of UK MAR Article 11(1). Broker A would benefit from the safe harbour when complying with UK MAR Article 11(3) and (5). Conversely, Broker B is conducting market soundings without the issuer's knowledge so would not fall within the scope of UK MAR Article 11(1). Broker B would not benefit from the safe harbour. Broker B would need to consider whether any disclosure of inside information made for the purposes of conducting a market sounding and made outside the UK MAR Article 11(4) safe harbour is lawful under UK MAR Article 10(1).
It is important for firms participating in this practice to assess, on a case-by-case basis, whether the market sounding falls within the scope of UK MAR Article 11(1). If not, firms must consider whether disclosures are lawful under UK MAR Article 10(1).
Firms should make sure they have clear policies and procedures in place to ensure compliance with UK MAR when acting as either Broker A or Broker B, in the example above.
Control environment in smaller firms
Consistent with SYSC 3.1.2G, firms should conduct a regular review of their systems and controls, considering factors such as whether they are proportionate to the nature, scale and complexity of their business.
However, we saw that smaller firms seemed to be more susceptible to organisational and cultural factors that can present specific compliance risks. We expect small firms to identify and manage these risks.
We saw several examples of good practice that seem to help manage these risks.
For example, having well-documented policies and procedures that were readily available to staff, with sufficient detail that allowed a clear understanding of responsibilities and required steps. Firms also required staff to attest to their understanding of the policies.
Another example of good practice was having structures in place, including oversight of compliance by the Board, an internal committee, or an external compliance consultant. This seemed to help ensure independence of the compliance function and key decisions.
Firms should carefully consider whether they have arrangements, policies and procedures that are appropriate to their size to ensure regulatory compliance.
Personal account dealing (PAD)
In Market Watch 62, we highlighted that effective compliance in relation to PAD requires a thorough understanding of the conflicts of interest which arise when employees with access to confidential and/or inside information conduct PAD.
Firms must identify and prevent or manage the PAD risks posed to the firm’s business with clear policies and procedures, and a strong compliance culture.
Effective PAD controls help make sure firms are managing the risk of market abuse, appropriately handling client confidential information and managing their obligations to identify and report suspicious transactions and orders.
In our reviews, we saw:
- Staff trading before receiving approval.
- Compliance not undertaking sufficient checks before granting approval.
- Staff not complying with the firm’s holding period.
- Compliance not following up on PAD breaches.
In some cases, this seemed to occur with the consent of senior members of the business.
We also saw firms failing to consider the inherent risks and potential conflicts of interest arising from their smaller size or business model when designing PAD policies and procedures.
Ongoing breaches of PAD policies are unacceptable. These policies and procedures are essential for maintaining market integrity by reducing conflicts of interest and helping to prevent market abuse.
Firms must implement adequate arrangements to manage these risks, and we saw that the right tone from the top is crucial for embedding a culture of compliance.