Regulators have discovered potential insider trading activities occurring before approximately one in three takeover proposals in the UK, although the trend appears to be declining.

The Financial Conduct Authority (FCA) revealed that suspicious trading actions were noted prior to 30.3 percent of bids in 2023, a decrease from 35.3 percent in the previous year.

New methods of analysis suggest that illegal trading might have been more prevalent than previously recognized due to prior inefficiencies in flagging suspicious activities.

By factoring in unusual share-buying behaviors on the day a bid is publicly announced, the rate of questionable cases escalated from around 20 percent to over 30 percent.

Previously, the FCA did not consider suspicious activities occurring on the day of the announcement, despite that being a time when many additional stakeholders and staff first learn of impending bids.

The FCA acknowledged that its previous assessments could have “potentially underestimated” incidents of suspected insider trading.

In addition to monitoring unusual share price fluctuations, the FCA evaluates irregular trading volumes before bids. This metric decreased from 8.4 percent of bids to 5.6 percent. Another indicator, focused on unique trading activities such as much larger-than-usual transactions, also saw a decline.

The FCA plays a crucial role in prosecuting cases of insider trading. In February, Mohammed Zina, a former analyst at Goldman Sachs, received a 22-month prison sentence after being convicted of multiple counts of insider dealing and fraud. This case marked the FCA’s first successful prosecution for insider trading since 2019.

Insider trading is illegal and carries significant penalties, including fines and up to seven years in prison for offenses committed before 2021, with a maximum sentence of ten years for actions taken thereafter. Given that takeover announcements typically lead to a substantial increase in the target company’s stock price, individuals with prior knowledge can secure substantial profits by purchasing shares beforehand.

The FCA asserted that its new analytical methodology remains effective even during periods of heightened market volatility, aiming to ensure that data aids the FCA in promoting transparency, deterring market manipulation, and fostering fair competition.

Last year, using its previous methodology, the FCA reported the highest levels of suspicious activity seen in 13 years.

In 2022, the FCA reached out to the executives of spread-betting firms, urging them to enhance their reporting of suspicious trades.