In the UK there are basically two major financial crimes, which are misleading markets (this normally involves lying about your results) and insider dealing (using price sensitive information to make quick money) - being financial crimes these go through criminal law rather than civil law.
I'm not going to write about those today, but instead look at market abuse which is held in civil law courts, not criminal law courts.
Now, in the UK you're not likely to go to prison for market abuse, but you may get nailed for a large fine if you get caught.
This is all to do with different forms of law and in order to understand why you're not likely to go to prison for market abuse you need to understand that in the UK we have criminal and civil law.
For example, let's say you go to a cafe and you come out of it believing that your coffee wasn't worth the £3 that was shown on the label and instead offer to pay £2 for it. This is a civil offence and you could be sued for money, but you're not going to go to prison. It would however be a criminal offence if you refused to pay anything for it, because that would be stealing.
Not paying the full price for a coffee is not a crime, but you could be sued for the remainder.
This is very important to understand because it's much harder to prove that something is a crime than it is to prove that you should be able to sue someone for a load of money. Hence, in the UK a civil law judgement is based "on a balance of probabilities" and a criminal law case judgement is based on the idea that you must have committed the crime "beyond reasonable doubt".
Also, if you go after someone in criminal court it's going to be expensive, you'll risk public humiliation to the regulator if they lose and they can take a very long time to get a judgement from.
This is where the 2005 Market Abuse Directive comes into play for the FCA, which is basically governmental permission for them to come after you in a civil law court rather than in a criminal law court.
This market abuse directive is used in conjunction with something called principal based regulation, whereby they have eleven principals which are all intentionally vague and difficult to understand, so they can nail you easily if they catch you doing something dodgy. For example, one of these principals is "market participants must behave with integrity", which effectively means whatever the FCA wants it to mean when they go after you.
In the case of the somewhat complicated and vague market abuse rules and regulations, we can see that holding these cases in a civil court is a much easier way to get a result quickly and reliably.
Market abuse itself is essentially covered by these three points:
1. Misuse of information - This is about divulging information that's not currently available to investors or as they put it in London, "wall crossing". If you tell your wife about a possible oil discovery in a firm that's about to be bought-out, you've crossed the mark and could be nailed for market abuse.
2. Misleading investors - This will normally be promising returns on investment vehicles or claiming that your company is the second best in its sector, when there only are two firms in that sector (that's a real example).
3. Manipulating Markets - This could be performing wash trades back and forth to give the impression of a more illiquid or placing orders in the stock exchange and then cancelling them to give impressions that are different, for example.
To conclude, going after people for market abuse is essentially an easier way to nail people for dodgy activity than getting them for a financial crime is. Although, if you do get caught you can live with the assurance that you're not going to go to prison for it, but you should regardless of this be ready to pay up a hefty amount to the regulator.
No comments:
Post a Comment