By Suraj Ruparell, Senior Compliance Consultant
In its Market Watch 83 (MW83) newsletter, the Financial Conduct Authority (FCA) has shared its observations following a supervisory review of corporate finance firms (CFFs) providing corporate finance advisory and corporate broking services to small and mid-cap companies. The supervisory review focused on firms’ systems and controls for handling inside information relating to their corporate clients when engaged in M&A transactions and capital raising.
MW83 is the third tangible supervisory action undertaken by the UK regulator in relation to CFFs in the space of two years, following the issue of a ‘Dear CEO’ letter in September 2023 and a sectorial s165 anti-money laundering (AML) questionnaire in January 2025.
Key takeaways from MW83
Following MW82 (published in July 2025), which focused on the more generic topic of transaction reporting obligations, MW83 shines a spotlight specifically on the market abuse risks surrounding CFFs engaged in M&A and capital-raising activities as corporate brokers.
The expectation of the FCA is that, as a first step, all CFFs should have established a comprehensive market abuse risk assessment (MARA), coupled with an appropriately calibrated systems and controls infrastructure to manage any identified risks effectively.
For all CFFs in the M&A and capital-raising space, whether focused on public and/or private markets, the regulator has highlighted the following three key Market Abuse Regulation (MAR) risk issues for specific attention:
- Market soundings and wall crossings
- Personal account dealing
- Systems and controls environments in smaller firms
The FCA has also shed light on what it deems to be good and bad practices in each of these three areas.
1. Market soundings and wall crossings
The FCA expects firms that undertake business necessitating market soundings to possess the following compliance infrastructure elements:
- An appropriately constructed market sounding framework (MSF), identifying how inside information is received by the firm and transmitted internally and externally in compliance with UK MAR
- Within the MSF, arrangements relating to disclosing market participants (DMPs) and market sounding recipients (MSRs) that are appropriate and comprehensive
- Details of which parties, relating to any market sounding exercise, qualify for the safe harbour rules set out in UK MAR articles 11(3) and (5)
- Appropriate use of gatekeepers when receiving or transmitting confidential and/or inside information to minimise the risk of leaks of non-public information
- Clear wall-crossing procedures, ensuring all individuals who’ve received inside information have been crossed by DMPs and/or gatekeepers
- Suitable oversight arrangements for market soundings and wall crossings, enabling audit trails to be available for all advisory engagements with these elements.
2. Personal account dealing (PAD) arrangements
Access to confidential and/or inside information by any staff members can give rise to significant regulatory issues when combined with PAD. Therefore, firms should have suitable policies and procedures embedded to help identify, prevent and manage PAD risks while fostering a strong compliance culture.
In an M&A advisory and corporate broking business environment, the FCA recommends firms should implement the following measures:
- A prior approval process before any member of staff is permitted to trade
- Sufficient monitoring checks on PAD patterns for all members of staff
- Appropriate checks to ensure prescribed holding periods are observed
- Follow-up on any compliance breaches, irrespective of staff member seniority.
The right tone from the top sets the compliance culture that the regulator expects to see.
3. Systems and controls environment in smaller firms
The FCA has pointed out that its expectations of the systems and controls environment for smaller firms operating in this segment remain proportionate to the nature, scale and complexity of their business activities. The regulator has underlined, however, that this degree of proportionality does not extend to the use of unwritten and informal compliance infrastructures. An ongoing obligation to establish and maintain an appropriate compliance infrastructure remains, irrespective of the size of the firm.
The FCA recognises that in smaller firms, the independence of the compliance function may be difficult to achieve, but it is not prepared to make allowances for firms that are unwilling to identify the risks from M&A advisory or corporate broking activities – or implement a proportional systems and controls environment, which may include an external compliance consultant, as is seen as good practice by the regulator.
Furthermore, smaller firms are given no leeway when it comes to ensuring that all staff engaged in regulated activities are subject to the same fitness and propriety, training and competence attestation processes as staff at larger firms.
How can we help?
Corporate finance firms are now demonstrably under greater FCA supervisory scrutiny in relation to all the compliance risks arising from their business models, as highlighted in the 2023 Dear CEO letter.
At IQ-EQ, our UK compliance consulting team has extensive experience assisting CFFs advising on M&A transactions and acting as corporate brokers for capital-raising exercises on behalf of their clients. We help these firms ensure compliance with their regulatory obligations.
If you believe your own firm’s compliance infrastructure may have shortcomings relating to the issues identified by the FCA within MW83 or their previous supervisory actions in September 2023 or January 2025, please don’t hesitate to contact us for an initial discussion. Together, we’ll strive to restore your confidence that your firm’s infrastructure is fit for purpose, matching your obligations and the regulator’s expectations.
To discuss your market abuse framework or any other compliance support we can offer from our expert compliance consulting team, contact us today.
