What is Market Conduct in capital markets?

Market conduct refers to the behaviour of market participants and their compliance with rules intended to ensure fairness, integrity and transparency in financial markets. This includes issues such as insider trading, market abuse, conflicts of interest, and fair treatment of investors.

Why are insider trading and market abuse policies important?

Because regulators impose strict obligations to detect, prevent and penalise misuse of inside information and abusive trading practices. Having robust policies helps firms avoid legal risk, penalties and reputational damage.

How do firms manage conflict of interest risk?

By identifying potential conflicts, establishing disclosure protocols, creating governance or oversight committees, ensuring separation of roles/tasks, and enforcing policies that mitigate conflicts in decision making or trading.

What is conduct risk and how is it monitored?

Conduct risk relates to behaviours (of employees, agents, etc.) that may harm clients, markets or the firm itself. It is monitored through training, surveillance, incident tracking, internal reviews, whistleblowing mechanisms, and performance monitoring.

What are the obligations around client treatment & disclosures?

Firms have to ensure clients are provided fair, clear and not misleading information; that fees, risks and conflicts are disclosed; that communication is honest, timely and tailored; and clients are treated fairly at all times.

How can firms prepare for regulatory investigations or enforcement actions?

They should maintain strong record keeping and audit trails, establish monitoring and surveillance programs, have incident reporting/whistleblowing processes, ensure policies are up to date, and perform periodic internal assessments or mock investigations.

Market Conduct Rules | FCA Compliance & Advisory

Overview

Capital market conduct refers to the standards, rules, and ethical practices governing the behavior of all participants in capital markets — including issuers, investors, intermediaries (like brokers and banks), and market operators.

In the UK, capital market conduct is shaped by both domestic law and European Union directives (historically), with a strong emphasis on investor protection, market integrity, and transparency.

Regulatory Framework

a. Key Regulators

Financial Conduct Authority (FCA): The primary regulator responsible for overseeing conduct in capital markets, ensuring firms act with integrity and protect consumers.
Prudential Regulation Authority (PRA): Supervises banks and insurers, focusing on financial stability.
London Stock Exchange (LSE) & Other Exchanges: Market operators with their own rules ensuring orderly trading.
The Panel on Takeovers and Mergers: Oversees fair conduct in UK takeover bids.

b. Main Regulatory Laws & Rules

Financial Services and Markets Act 2000 (FSMA): The foundational law giving the FCA its powers.
Market Abuse Regulation (MAR): EU regulation retained in UK law post-Brexit; prohibits insider trading, market manipulation, and requires disclosure of inside information.
Prospectus Regulation: Sets requirements for disclosures when companies offer securities to the public.
Disclosure Guidance and Transparency Rules (DTR): Obligations on listed companies for timely, accurate disclosure.
UK Corporate Governance Code: Best practices for listed companies, impacting transparency and accountability
MiFID II (retained UK rules): Markets in Financial Instruments Directive II governs market structures, transparency, and investor protection.

Key Principles of Market Conduct

Integrity: Market participants must act honestly, fairly, and professionally.
Transparency: Timely disclosure of material information to avoid information asymmetry.
Fairness: Avoidance of market manipulation, insider trading, and other abusive behaviors
Investor Protection: Providing appropriate information, treating customers fairly, and ensuring suitability of products.
MiFID II (retained UK rules): Markets in Financial Instruments Directive II governs market structures, transparency, and investor protection.

Common Areas of Market Misconduct

Insider Trading: Using non-public, price-sensitive information to trade securities.
Market Manipulation: Actions to create misleading appearances of demand or supply.
False or Misleading Disclosure: Inaccurate financial statements or omission of material facts.
Mis-selling: Selling financial products inappropriate to investors' needs.
Failure to Disclose Holdings: Large shareholders failing to disclose their holdings.

Enforcement and Penalties

The Financial Conduct Authority (FCA) has extensive powers to investigate and take action against breaches of market rules, which may include imposing fines, issuing public censures, suspending activities, or pursuing criminal prosecutions. In cases involving serious criminal market abuse, the UK Serious Fraud Office (SFO) may also intervene to conduct investigations and prosecutions. In addition to regulatory action, market participants found guilty of misconduct may face civil claims from investors who have suffered losses as a result of such violations.

Recent Trends

Increased focus on Environmental, Social, and Governance (ESG) disclosures.
Greater scrutiny of crypto assets and emerging financial technologies
Ongoing post-Brexit adjustments to regulatory equivalence and divergence from EU rules.
Stronger emphasis on financial crime prevention, including anti-money laundering.