Charles Marquand sees problems for insider dealing charges.

Charles Marquand is a barrister at 3 New Square.

Recent reports (The Lawyer 25 June 1996) suggested that the losers in the recent copper market turmoil were considering whether to start litigation under section 62 Financial Services Act 1986 for losses arising from insider dealing. They may be disappointed.

Section 62 (1) of the Act provides inter alia that a contravention of the Core Conduct of Business Rules (CCBRs) made by the Securities and Investments Board (SIB) is actionable in the civil courts. Such a contravention is actionable as if it were a breach of statutory duty thus the lighter civil standard of proof applies.

The CCBRs apply only to those who are not members of a self-regulating organisation (SRO). But section 62 (2) of the 1986 Act has the effect that a contravention of the rules of an SRO over a matter which could have been the subject of a rule is also actionable as if it were a breach of statutory duty. These provisions form a regulatory "seamless web".

However, the good news ends there. CCBR 28 forbids a firm from effecting an own account transaction which would infringe the statutory restrictions on insider dealing. The rules of the SFA, Imro and PIA have the same effect. While dealing in certain commodities derivatives can be "investment business" within the Act's terms, the statutory restrictions on insider dealing have a much narrower ambit.

The Criminal Justice Act 1993 forbids insider dealing in certain securities on "regulated markets" or by professional intermediaries. Broadly, the securities affected are: shares, debt securities, warrants, depository receipts, options in such securities, futures in such securities and contracts for differences in such securities.

This statutory framework does not necessarily exclude common law remedies for common law wrongs. But it may be an uphill struggle proving, say, misrepresentation. What this points to is that the losers will have to await criminal proceedings, whether for insider dealing or market manipulation. If there are convictions, the convicting court has, in principle, power under section 35 of the Powers of Criminal Court Act 1973 to award compensation for "any personal injury, loss or damage" resulting from the offence. It is not necessary for the loss itself to be actionable.