The European Union is considering EU-wide mandatory criminal sanctions for insider dealing and market manipulation (market abuse). While a number of Member States already have such sanctions in place, others have not. Current EU legislation and in particular the Market Abuse Directive (Directive 2003/6/EC) only broadly refer to an obligation for the Member States to take appropriate administrative measures against these practices but stay away from the EU-wide criminalisation that is now on the table.Like any EU action in the field of criminal law, this is politically sensitive.
The introduction of such EU-wide rules builds upon a key recommendation of the High-Level Group on Financial Supervision in the EU. This group was set up in the wake of the financial crisis. It concluded that a sound prudential and conduct-of-business framework for the financial sector must rest on strong supervisory and sanctioning regimes. It assessed the sanctions that are currently applicable in the Member States of the EU and found them "generally weak and heterogeneous". It also found that not all national authorities had a full set of administrative powers to ensure that they could appropriately sanction market abuses (e.g. entering into transactions that give false or misleading signals as to the price of financial instruments, or the unlawful disclosure of inside information).
At this stage, the proposed approach is to establish minimum common rules on market abuse offences, while leaving Member States the freedom to adopt or maintain more stringent criminal law rules. However, even this approach will require significant changes to some Member States' legal systems.
For instance, under the proposed directive, companies can be held criminally liable for market abuse offences if these were committed for their benefit by a person who acted either individually or as part of an organ of that legal person, and who had a leading position within that legal person. This criminal liability will also encompass situations where the lack of supervision or control by a legal person enabled the commission of the offence. The draft directive on criminal sanctions also requires Member States to ensure that market abuse offences committed by individuals (natural persons) are criminally punishable. The draft directive does not determine the kind (fine or imprisonment) or severity of the criminal sanctions, but leaves this to each Member State's discretion.
The draft directive is intended to be adopted in parallel with a new regulation on market abuse. It is currently being discussed by the EU institutions, with broad political support for their adoptionand agenda priority:
- the European Parliament's powerful Committee on Economic and Monetary Affairs (ECON) approved on 9 October 2012 the Reportof the Irish rapporteur Arlene McCarthy with 39 votes in favour, one abstention and no votes against. The Parliament's plenary vote is scheduled for 21May 2013. Although the proposed directive will likely be further amended following discussions with the Council and Commission (the so-called "Trialogues"), this level of political support at the committee level typically means that the plenary vote will not be controversial;
- The Council reached a general approachon the proposed directive on 7December 2012. The Irish Presidency of the Council, which runs from 1 January to 30 June 2013, regards strengthening the financial supervision as one of its priorities1;
- The "trialogue" discussions between the Parliament, Council and Commission in order to reach a common view on the proposal started on 24 January 2013 and continued through March 2013.
Without being as such against the introduction of criminal sanctions for serious market abuse offences, some stakeholders have levelled significant criticism at the unclear definitions and considerably expanded scope of the proposed new EU rules on market abuse generally. They have, for instance, pointed out that the expanded definition of "insider information", coupled with the risk of criminal sanctions for insider dealing, might limit the appetite for investments in EU-listed companies. This is one of the points that is likely going to be discussed during the abovementioned "trialogues".
The directive on criminal sanctions is currently expected to apply to all Member States, with the exception of the UK and Denmark, which will, contrary to Ireland, likely not use their opt-in right. Member States will, after the directive'sentry into force, have 24 months for its transposition into national law.
We will further monitor these developments closely and keep you posted.
1 The Programme of the Irish Presidency of the EU Council refers to the strengthening of financial supervision as one of its priorities. The Trio-programme of the Irish, Lithuanian and Greek Presidencies, which covers the period January 2013 to June 2014, also considers "enhancing the transparency and integrity of the financial sector" as a priority.
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