Articles | Ethics & Compliance | LRN

Insider Trading Compliance Training: The Threat & the Solution - Interactive Services

Written by E&C Expert | May 21, 2015 4:00:00 AM

Instances of insider trading are significant, though they often go undetected or are not exposed. According to a 2014 study, Insider trading has tainted a quarter of all public merger and acquisition transactions with only a fraction of these cases resulting in government prosecution.

This article looks at why insider trading presents such a serious threat to global organizations and highlights what they can do to ensure they are protected against it.

The Threat

One of the great challenges in exposing insider trading, is that trades influenced by insider information are often made months before it becomes public knowledge. The horse has often bolted by the time the stable door is closed. Furthermore, there is no ‘one-size, fits-all’ law existing in any country – laws vary from jurisdiction to jurisdiction and insider trading is dealt with on a case-by-case basis so it is rarely straightforward.

The circumstances in which information is acquired and how it is used is scrutinized by the courts and is given careful examination before any wrong doing is confirmed. Trading with a material informational advantage doesn’t necessarily amount to ‘fraud’ unless the trader has a duty to disclose his informational advantage to those he may be violating.

The scale of gains that can be achieved by insider trading is virtually limitless. This is why penalties are getting much tougher. To illustrate this point, a recent Wall Street Journal article revealed that the median jail term for insider trading in 2011 was 30 months. This is up by 66% from the 18-month median from 2000-10.

Penalties, of course, do not just apply to the dishonest executives – they can also apply to the organization, assuming that it has been negligent or unprofessional in its measures to prevent insider trading.

And bear in mind that, as well as the executives we named above, any employee in any public company could have access to insider information. Even if the subsequent trades they make are small in value, the fallout from this could have a highly negative impact on the employer’s reputation.

The Solution

Insider trading is a threat that will always exist. The very nature of the crime dictates that it is a difficult one to eliminate. Inside information can be used intentionally by those who wish to deceive and defraud for personal gain. But it can also be shared innocently by those who may not realise the consequences of their actions until it is too late.

There are two key steps every organization can take to help combat the threat of insider trading.

Communication

Regular communicating with employees about the threat of fraudulent activities such as insider trading is essential.

This can be done through:

  • Implementation of compliance policies which outline what every employee needs to know about insider trading and other crimes and what their legal obligations are.
  • Designating a compliance officer – each of your compliance policies should identify a compliance officer whom employees can raise any queries, suspicions or concerns about insider trading and other issues.

Education & Training

Regular education is something which underpins the success of any business. And when it comes to matters of compliance and ethics programs, awareness training plays a vital role.

Changing regulations in every industry is making training increasingly more important. Consequently, every organization should run mandatory compliance training on an annual basis for employees at every level. Training certifications that confirm training attendance and familiarity with the terms of the compliance policy should be required.

Many organizations are choosing to use engaging and innovative new methods of training for employees. Advances in technology over the past decade have meant that an abundance of training types now exist which make the learning experience a more enjoyable and effective one for employees.

 

Need Insider Trading Training? We’re here to help!

At Interactive Services,we have worked with companies in Financial Services, Retail and other regulated industries for over two decades. We develop innovative compliance training solutions that address a variety of compliance topics including insider trading, AML, workplace conduct, data privacy and more.

Find out about our Compliance Learning Center (CLC), a suite of compliance modules designed by industry experts to deliver corporate compliance training. Or, contact us to discuss developing a custom eLearning or a blended training solution to help improve performance of your employees.