How to avoid insider dealing in a company

Insider dealing is one of the most severely penalised offences in French securities law. This criminal offence, punishable by heavy fines and imprisonment, can affect any professional with access to inside information about a listed company. In the face of the growing number of inspections by the Autorité des marchés financiers (AMF, the French financial markets authority) and the exemplary penalties imposed by the courts, the prevention of insider dealing is becoming a major compliance issue for companies and their officers.

Definition and constituent elements of insider dealing

Insider dealing (délit d'initié) is legally defined in Article L465-1 of the French Monetary and Financial Code. The offence rests on three cumulative elements that the public prosecutor must establish: possession of inside information, use of that information to carry out financial transactions, and the intention to profit from that informational advantage.

Inside information has precise characteristics. It must be precise, that is, detailed enough to allow conclusions to be drawn on the likely movement of the share price. It must also be non-public, and therefore not available to the market as a whole. Finally, it must be likely to have a significant effect on the price of the financial instruments concerned.

Case law has gradually widened this concept. The courts consider that information remains inside information until it has been effectively disseminated to the public. Mere publication on the company's website is not sufficient if it has not been relayed through the usual channels of financial information.

Persons liable to be prosecuted

The range of persons exposed to insider dealing extends well beyond the officers of listed companies. Primary insiders include corporate officers, members of the board of directors or supervisory board, and employees who have access to inside information by virtue of their duties.

Secondary insiders form a broader category comprising any person who has obtained inside information in the course of their profession or duties. This definition covers corporate lawyers, chartered accountants, investment bankers, financial journalists and external providers involved in sensitive transactions.

Criminal liability may also extend to occasional insiders, persons who have come by inside information by chance. An employee who overhears a telephone conversation of their manager referring to an imminent acquisition may thus be exposed if they exploit that information.

Penalties incurred and examples of prosecutions

The penal regime for insider dealing is particularly severe. Article L465-1 of the French Monetary and Financial Code provides for a prison sentence of five years and a fine of €100 million. The fine may be increased to ten times the profit made where that profit exceeds one tenth of the amount provided for by law.

The AMF also has an autonomous power to impose administrative sanctions. It may impose financial penalties of up to €100 million or ten times the profit made, as well as temporary or permanent bans from practising.

Recent cases illustrate the reality of these penalties. In 2023, the AMF Enforcement Committee imposed several fines exceeding one million euros for insider breaches. These decisions, which are made public, set a deterrent precedent for all market participants.

Impact on reputation and career

Beyond financial and criminal penalties, the consequences of a conviction for insider dealing extend to professional reputation. An entry on the criminal record can permanently compromise a career in finance or business. Convicted persons are often banned from holding management positions or from accessing certain regulated professions.

Companies themselves suffer considerable reputational harm. An insider dealing case involving an officer can durably affect investor confidence and market valuation.

Prevention measures to be put in place

The prevention of insider dealing rests on the implementation of compliance measures adapted to the specific features of each organisation. These preventive measures are now a legal obligation for listed companies and their subsidiaries.

Risk mapping and identification of sensitive persons

Drawing up a risk map is the first step of an effective prevention approach. This analysis must identify the functions exposed to the possession of inside information: general management, finance department, legal departments, financial communications, mergers and acquisitions, and investor relations.

The mapping extends to external providers likely to access sensitive information. Law firms, audit firms, advisory banks and communications agencies must be included in the risk analysis and subject to the same confidentiality requirements. The drafting of confidentiality agreements concluded with these parties is covered in our guide to NDAs and confidentiality.

This approach makes it possible to draw up insider lists setting out by name the persons who have access to inside information. These lists, updated in real time, are a regulatory obligation and an essential traceability tool.

Code of conduct and internal procedures

Adopting a code of conduct specific to insider dealing formalises the rules applicable within the organisation. This document must define precisely the notion of inside information, identify prohibited conduct and specify the applicable internal sanctions.

Internal procedures complete this body of rules. They organise in practical terms the handling of sensitive information: restricted circulation lists, marking of confidential documents, securing of electronic communications and control of business travel.

Specific procedures must govern the closed periods preceding the publication of financial results. During these periods, persons on insider lists are prohibited from any transaction in the securities of their company.

Training and awareness of teams

Training is an essential pillar of the prevention of insider dealing. Exposed staff must receive thorough initial training supplemented by regular update sessions.

Content and format of training

Training programmes must cover the legal, practical and ethical aspects of insider dealing. The modules include the legal definition of the offence, the analysis of practical cases drawn from case law, and a presentation of the applicable internal procedures.

Practical cases anchor the training in professional reality. The analysis of concrete situations helps staff to identify risk areas and to adopt the right behavioural reflexes.

Training is adapted to the specific features of each audience. Senior managers receive a strategic approach focused on governance and crisis management. Operational teams receive practical training centred on the day-to-day application of procedures. The definition of corporate governance and how it is implemented are set out in our FAQ on company governance.

Continuous awareness tools

Awareness is not limited to formal training sessions. Compliance newsletters regularly circulate regulatory and case law developments. These publications keep teams alert and remind them of the changing risks.

Internal alerts flag sensitive periods in real time: preparation of financial transactions, acquisition negotiations or a situation of economic difficulty. These targeted communications strengthen prevention at critical moments.

Management of inside information

Controlling the circulation of inside information is a major operational issue for companies. This management requires technical and organisational measures adapted to the current digital environment.

Access control and traceability

Information systems must include granular access control features. Access to sensitive information is limited to persons with a legitimate professional need, in accordance with the need to know principle.

Traceability of access makes it possible to reconstruct after the event how inside information was disseminated. Audit logs keep a record of the consultation, downloading and transmission of sensitive documents.

These technical measures are accompanied by organisational measures. Chinese walls (murailles de Chine) partition teams according to their information needs. An investment bank thus separates, both physically and in its IT systems, its advisory activities from its trading services.

Management of external communications

Media relations are subject to strict controls. Only authorised persons may speak publicly on behalf of the company on sensitive subjects. Interviews and conferences follow prior approval protocols.

Professional social networks create new risks of inadvertent disclosure. Exposed staff receive precise instructions on the use of LinkedIn, Twitter or sector platforms.

Monitoring and internal controls

The effectiveness of prevention measures depends on their effective control. Companies must put in place monitoring mechanisms capable of detecting potential breaches.

Transaction monitoring

Automated monitoring analyses the financial transactions carried out by persons on insider lists. These systems detect suspicious transactions by cross-checking them against sensitive periods and the inside information held.

Transaction notifications are a legal obligation for senior managers and significant shareholders. The AMF publishes these notifications, creating transparency on the securities movements of primary insiders.

Periodic controls and audits

Second-level controls periodically verify the effective application of internal procedures. These audits cover the keeping of insider lists, compliance with closed periods and the training of exposed staff.

Internal audit or specialised providers carry out in-depth reviews of the overall system. These assignments identify potential failings and recommend the necessary adjustments.

Alert and remediation procedures

Early detection of breaches limits their impact and demonstrates the organisation's good faith. Companies must set up effective alert channels and appropriate remediation procedures.

Reporting mechanisms

Ethics alert channels allow staff to report observed breaches anonymously. These mechanisms, protected by professional secrecy, encourage the reporting of information without fear of reprisals.

The compliance officer centralises the handling of alerts and coordinates internal investigations. This function, performed by a person independent of operational activities, guarantees the objectivity of investigations.

Incident management

When a breach is identified, the company must immediately take protective measures: suspension of the persons concerned, freezing of trading accounts and securing of evidence.

Self-reporting to the AMF may be an effective defensive strategy. This voluntary step demonstrates the quality of the internal control system and may lead to a reduction in penalties.

Sector-specific features and adaptation of measures

Certain sectors present particular risks that call for specific adaptations of insider dealing prevention measures.

Banking and financial sector

Banks face multiple risks arising from their dual advisory and trading activities. Information obtained in the course of commercial relationships may constitute inside information that can be exploited by other departments.

Chinese walls take on particular importance in this sector. These organisational and technical partitions separate activities that are liable to create conflicts of interest.

Consulting and audit firms

External providers accumulate inside information on multiple clients. Their exposure to risk requires reinforced prevention measures and particular vigilance when engagements change.

Corporate law firms develop specific protocols to manage information obtained under different engagements. Professional secrecy is not an absolute protection against prosecution for insider dealing.

Frequently asked questions

Can an employee buy shares in their company in a normal period? Employees may freely invest in their company outside closed periods, provided they do not hold inside information. Senior managers and persons treated as such must comply with specific reporting obligations to the AMF for their transactions.

How long must insider lists be kept? Insider lists must be kept for five years after their last update under the European market abuse regulation. This retention allows the authorities to reconstruct the dissemination of inside information during investigations.

Is information obtained at a board meeting always inside information? No, only information that is precise, non-public and likely to have a significant effect on the share price constitutes inside information. General discussions on strategy or direction do not necessarily fall within this definition.

Can a senior manager sell shares to finance a personal property purchase? Senior managers may sell their shares to meet personal financing needs, but must comply with closed periods and reporting obligations. A pre-arranged sale plan (trading plan) may be put in place to automate transactions and reduce risks.

What is the difference between insider dealing and market manipulation? Insider dealing penalises the exploitation of inside information, whereas market manipulation covers transactions intended to artificially influence the price of a financial instrument. These offences may be combined but follow different logics.

Are unlisted start-ups concerned by insider dealing? Insider dealing applies only to financial instruments admitted to a regulated market or a multilateral trading facility. Unlisted start-ups are therefore not directly concerned, unless they issue tradable bonds.

How can possession of inside information be proved? Proof of possession of inside information generally results from the position held, attendance at sensitive meetings or access to confidential documents. The authorities will reconstruct the path of the inside information from insider lists and traceability systems.

The prevention of insider dealing requires a comprehensive approach combining legal, organisational and technical measures. In view of the growing sophistication of AMF inspections and the severity of the penalties imposed, companies and their officers can no longer settle for a minimalist approach. Putting in place a robust compliance system, regularly audited and adapted to regulatory developments, is now a strategic imperative. Before any roll-out, have your prevention system validated by a lawyer experienced in securities law to ensure its compliance and operational effectiveness.