Personal account dealing refers to the trading or investment activities of employees, particularly in the financial services sector, for their personal gain. Regulations typically require employees to report such personal dealings to their employers to prevent conflicts of interest and insider trading.
Why Personal Account Dealing Matters
Personal account dealing (PAD) poses a significant risk to financial institutions because it creates the potential for conflicts of interest, insider trading, and market abuse. Employees with access to confidential or price-sensitive information can misuse their position for personal gain, undermining market integrity and public trust.
In regulated industries—especially banking, asset management, and investment advisory services—PAD is considered a compliance-critical issue. Failure to manage it effectively can result in regulatory breaches, reputational damage, and legal liability.
Common Risks and Misconduct Scenarios
Personal account dealing becomes problematic when:
Employees trade in securities about which they have confidential or insider information.
Staff members front-run client orders by trading for their own accounts ahead of large client transactions.
Employees misuse research, proprietary models, or client positions to inform their own trading decisions.
Firms fail to record or monitor personal trades, leading to inadequate oversight.
Undisclosed PAD occurs via external brokerage accounts, relatives, or third parties.
Even when the intent is not malicious, perception alone can damage the credibility of the institution and erode client trust.
Regulatory Expectations
Regulators such as the Financial Conduct Authority (FCA), U.S. Securities and Exchange Commission (SEC), European Securities and Markets Authority (ESMA), and Monetary Authority of Singapore (MAS) all have clear rules requiring firms to:
Maintain written PAD policies.
Require employees to pre-clear certain trades.
Enforce restricted trading lists and blackout periods.
Record, monitor, and periodically review personal dealing activity.
Train staff on PAD rules and consequences for violations.
Non-compliance can lead to regulatory fines, enforcement actions, and internal disciplinary measures.
Best Practices for Managing PAD
To effectively control PAD risk, firms should implement robust governance and monitoring frameworks, including:
Pre-Trade Approvals: Requiring employees to obtain permission before executing trades, particularly in sensitive securities.
Trade Surveillance Tools: Using technology to automatically flag suspicious trading patterns or conflicts with firm trades.
Disclosure Requirements: Mandating full disclosure of all brokerage accounts, including those held by close family members.
Restricted Lists: Preventing employees from trading in securities where the firm has material non-public information.
Periodic Attestations: Requiring employees to certify compliance with PAD policies on a regular basis.
Integration with the firm’s code of ethics and conflict of interest framework helps reinforce a culture of transparency and accountability.
Training and Culture
PAD policies are only effective when staff understand the risks and responsibilities associated with personal trading. Ongoing training should emphasize:
The types of behavior that constitute market abuse
How and when to disclose or seek approval for trades
Consequences of policy violations
The importance of protecting confidential client and firm information
Fostering a culture where ethical conduct is prioritized helps prevent misconduct and encourages early reporting of potential breaches.
Conclusion
Personal account dealing, if not properly governed, presents a real threat to the integrity of financial markets and the firms that operate within them. A strong control framework, backed by technology, training, and a transparent culture, is essential to detect, prevent, and manage PAD risks effectively.
