PA dealing in a sub-£1bn shop: where proportionality gets tested

The personal-transaction requirements for a MiFID firm sit in COBS 11.7A, which carries through the substance of the MiFID Organisational Regulation, specifically the personal-transaction provisions of Article 29. The equivalent provisions apply to full-scope alternative investment fund managers under the AIFMD regime. There are two parallel rule sets, and a firm should know which one it’s in: COBS 11.7A for MiFID firms, and COBS 11.7 for non-MiFID investment firms. Same objectives, different wording. The FCA has acknowledged a live drafting issue here. Its CP25/36 consultation records a technical error in COBS 11.7 that excludes personal transactions in certain European funds but not UK-authorised ones, contrary to the policy intent, and proposes to correct it. The practical point for a manager is to confirm which rule set governs the firm and not assume a clean read-across between the two. The requirements are the same in outline, and they come in three parts, each of which the firm has to be able to evidence.

First, scope. A personal transaction is a trade in a financial instrument by or on behalf of a relevant person, where the person is acting outside the scope of their professional activities, or the trade is for the account of certain connected persons. Relevant persons are not only the investment team; they include the firm’s directors, partners, employees and others under its control. The connected accounts reach the relevant person’s own accounts, family and household accounts, and accounts in which the person holds a material interest. A firm that applies its PA dealing regime only to the portfolio managers, and not to the whole staff and their connected accounts, has misdefined the population the rules cover.

Second, the prohibitions. The firm must ensure that relevant persons do not enter into a personal transaction that is prohibited under UK MAR, that involves the misuse or improper disclosure of confidential information, or that conflicts, or is likely to conflict, with an obligation of the firm under the markets regime. Those three categories capture the real risks: insider dealing, the misuse of client or deal information, and front-running or otherwise trading against the interests of the fund. This is the point where the market-abuse prohibitions and the conflicts regime reach an individual’s own brokerage account.

Third, the arrangements and the record. The firm must establish, implement and maintain adequate arrangements aimed at preventing those prohibited transactions by any relevant person who is involved in activities that may give rise to a conflict, or who has access to inside or confidential information. Those arrangements must ensure that relevant persons are aware of the restrictions, that the firm is informed promptly of personal transactions, whether by notification or by a process that lets the firm identify them, and that a record is kept of each transaction notified or identified, including any authorisation or prohibition. SYSC 10 sits over the top of all this: a personal transaction by someone whose interest in the outcome differs from the client’s is a textbook conflict. The rule requires a kept record. The regulation requires the firm to show, from records, that the policy operated.

PA dealing has an odd status in compliance. It feels like housekeeping, the administrative tidying of staff brokerage accounts, so it tends to run on trust rather than on evidence. Front-running and insider dealing both pass through personal accounts, and an inspection settles quickly whether a firm’s controls are real, because the test is concrete. A supervisor can establish quickly whether the pre-clearance log exists and whether broker statements have been reconciled.

The sub-billion-pound shop is exposed on three fronts. The compliance function is small, often one person, so logging and reconciling compete with everything else that person carries. The investment team is senior and the relationships are informal, so asking a colleague to pre-clear a trade can feel like bureaucracy among people who trust each other. And the compliance officer often has no obvious person to clear their own dealing, which leaves the most sensitive account in the firm outside the control.

Each has a proportionate fix a small firm can run. The logging burden goes away when the request and its disposition are captured as one short record at the moment of clearance, rather than reconstructed at period end; where volumes justify it, a low-cost dealing tool or a simple structured log replaces a chain of emails. Senior people visibly following the regime themselves sets the tone more effectively than added process. The clearer’s own trades are covered by naming an independent approver in advance, a fellow senior manager, a non-executive director, or an outsourced compliance resource, so that no account, including the compliance officer’s, sits outside the regime. A small firm should design its own regime rather than copy a large firm’s.

A regime light enough for a small firm and detailed enough to reconstruct any trade from records comes down to eight components. The aim throughout is a clean, retrievable trail.

Start with scope. The policy should state who counts as a relevant person, confirm that the regime reaches their connected and household accounts and any account in which they hold a material interest, and set out which instruments are covered. Carve-outs, say for units in diversified collective investment schemes the firm doesn’t advise, are legitimate, but they should be stated and reasoned rather than assumed.

Then pre-clearance with a real audit trail. The pre-clearance request and its disposition are the central record. A relevant person asks to trade; compliance checks the request; approval or refusal follows, timestamped, valid for a defined short window. The log of those requests and dispositions is the central document. Without it, every other element is unverifiable.

Behind the clearance sit the checks. Pre-clearance must be checked against restricted and watch lists, open orders and blackout windows. The request should be checked against the restricted and watch lists, so a relevant person can’t deal a name the firm is walled on; against the firm’s open orders and near-term pipeline, so the personal trade doesn’t front-run or run alongside the fund; and against any blackout window. The decision should record what was checked, so the approval itself evidences the conflict and market-abuse checks behind it.

Holding periods and blackout windows are simple, effective controls. A short-term trading restriction, a minimum holding period, and blackouts around the firm’s own dealing in the same instruments cut front-running and churn risk, and they’re simple to evidence because the dates speak for themselves.

Broker statements and reconciliation come next, and this is the step that shows the policy operated. Relevant persons should declare their brokerage accounts and arrange duplicate confirmations or direct statement feeds, and compliance should reconcile actual trades against the pre-clearances. Without reconciliation, the log shows that people asked permission, not that they complied. Reconciliation shows the control changed behaviour.

Initial and annual holdings disclosure and attestation give the reconciliation its baseline. Relevant persons should declare their holdings on joining and at least once a year, and attest to compliance. The disclosures give compliance the baseline the statements are reconciled against; the attestations create individual accountability that maps to the conduct rules.

Independent clearance for the clearer closes the last gap. The compliance officer’s and senior staff’s own dealing has to be approved by someone independent, whether another senior manager, a non-executive, or an outsourced compliance resource. Independent clearance is achievable at any size; it is a matter of design.

Exception handling, escalation and MI hold the regime together. Breaches, late notifications and refused trades that went ahead anyway must be captured, escalated and recorded, and the board or the relevant senior committee should see periodic management information: requests, approvals, refusals, breaches and reconciliation coverage. Thin or absent MI here is itself a weakness the FCA has flagged across surveillance and conflicts alike.

It’s worth keeping PA dealing next to its neighbours in the personal-conduct register: gifts and inducements, and outside business interests. A relevant person who doesn’t declare an outside directorship, or who accepts hospitality that creates an obligation, is presenting the same kind of undisclosed personal interest that PA dealing exists to surface. One coherent conduct register, run with the same discipline of declaration, approval and record, gives a supervisor a consistent account of how the firm controls the private interests of the people who act for the fund.

PA dealing also overlaps with two other controls. The restricted list it checks against is the same list the MNPI wall maintains, so a personal trade in a walled name is caught by the artefact that already protects the fund. The conflict it guards against, a relevant person dealing ahead of or against the fund, is the front-running behaviour the firm’s trade surveillance is configured to detect. Drawing PA dealing, the MNPI wall and surveillance on one restricted list and one record cuts both the burden and the evidence gap. They’re strongest, and cheapest to maintain, when they share those underlying records rather than each keeping its own.

A defensible personal trade leaves the same trail every time, in this order:

1. a dated pre-clearance request from the named relevant person
2. a record of the checks run against the restricted list, the firm’s open orders and any blackout
3. a timestamped approval or refusal, with a validity window
4. the executed trade
5. a later reconciliation of that trade, from the broker statement, against the approval that permitted it

Five steps, one file per trade. The regime is evidenced only if the firm can produce that file for a sampled trade.

This insight is provided for general informational purposes only and doesn’t constitute legal, investment, or regulatory advice.