The UK Financial Conduct Authority (“FCA”) published the latest edition of Market Watch 83 on 8 September 2025, which includes observations from the FCA after a review of corporate finance firms that provide advisory and corporate broking services to small and mid-cap companies over the last five years. The review highlighted practices in relation to disclosure of inside information by way of market soundings and the ways in which such practices may not fully comply with the UK Market Abuse Regulation (“UK MAR”).
Market soundings are interactions between issuers and potential investors which help determine interest in a transaction before its announcement. These market soundings support the proper functioning of financial markets and price discovery by allowing issuers to gauge investors’ opinions on proposed transactions to help set their price, size and structure.
In Market Watch 83, the FCA identified a number of market practices where there was a heightened risk of potential non-compliance with UK MAR in firms that routinely possess inside information about their corporate clients. We have set these out below, as well as some guidance and good practices shared by the FCA on such practices.
1. Number of Market Sounding Recipients (“MSRs”)
The FCA observed that brokers and corporate finance firms acting as Disclosing Market Participants (“DMPs”) extended their market soundings to a relatively large number of MSRs without a process for considering the appropriateness or the number of MSRs contacted.
The FCA encourages firms to consider whether their policies and procedures help effectively manage the number of MSRs to control the flow of inside information. A good practice would be to consider putting in place 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 to ensure:
- firms considered in enough detail why each potential investor was included on the MSR list; and
- there was a clear justification for sharing inside information.
2. Risk of unlawfully disclosing inside information during a market sounding
The FCA identified the risk of unlawful disclosure after a DMP had received consent from its first point of contact (also known as a “gatekeeper”) for it to approach and request consent to undertake a market sounding. DMPs have apparently shared information with MSRs via email and the list of recipients on the email chain had expanded without obvious control over who was added and whether they had been wall crossed by the gatekeeper.
The FCA suggests that both DMPs and MSRs should consider and address the risk of unlawfully disclosing inside information by sharing market sounding information with MSRs that the gatekeeper has not wall crossed.
3. Sharing a standard set of deal-specific information
The FCA saw varying practices for identifying and agreeing deal-specific information to share with MSRs.
Firms’ policies and procedures should make sure the same level of information is shared with every MSR. Best practice noted by the FCA involves the DMP using an approved script for all market soundings. This would help to minimise differences in information shared in soundings.
4. Multiple brokers market sounding for a transaction
The FCA observed a practice in which one broker (Broker A) had involved another broker (Broker B) to market sound its contacts, without the knowledge of the issuer. The FCA highlighted that the safe harbour protection from the unlawful disclosure of inside information offence contained in the UK MAR only extends to a third party acting on behalf or on account of the issuer. As such, Broker B would not benefit from such safe harbour protection.
The FCA stressed the importance for firms participating in this practice to assess, on a case-by-case basis, whether the market sounding falls within the scope of the safe harbour protection. If not, firms must consider whether disclosures are lawful under the UK MAR. Firms should ensure that they have clear policies and procedures in place to ensure compliance with UK MAR when acting as either Broker A or Broker B.
5. Control environment in smaller firms
The FCA saw that smaller firms seemed to be more susceptible to organisational and cultural factors that can present specific compliance risks. This included:
- overfamiliarity between compliance and the business which presented a risk of inadequate challenge from compliance;
- reliance on unwritten and informal policies and procedures that firms mistakenly considered proportionate to their size and led to inconsistencies and potentially non-compliant conduct; and
- small numbers of staff sharing small office spaces which presented a heightened risk of weak information barriers.
Firms should carefully consider whether they have arrangements, policies and procedures that are appropriate to their size to ensure regulatory compliance. The FCA highlighted the following good practices:
- having well-documented policies and procedures that are readily available to staff, with sufficient detail that allow a clear understanding of responsibilities and required steps, with firms requiring staff to attest to their understanding of the policies; and
- having structures in place, including oversight of compliance by the board, an internal committee or an external compliance consultant to ensure independence of the compliance function and key decisions.
6. Personal Account Dealing (PAD)
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. Effective PAD controls help to ensure 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.
The FCA’s reviews reported the following incidents (some of which seemed to occur with the consent of senior members of the business):
- staff trading before receiving approval;
- compliance not undertaking sufficient checks before granting approval;
- staff not complying with the firms’ holding period;
- compliance not following up on PAD breaches; and
- 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.
The FCA emphasised that ongoing breaches of PAD policies are unacceptable. These policies and procedures are essential for maintaining market integrity by reducing conflicts of interests and helping to prevent market abuse.
Firms must implement adequate arrangements to manage these risks, and the FCA has seen that the right tone set from the top is crucial for embedding a culture of compliance.
For more information, please see the FCA’s Market Watch 83. You may also wish to take a look at the FCA’s Market Watch 62 for further details about PAD.