EU Commission plans for a Directive on criminal sanctions for market abuse took a big leap forward this week, with the news that the European Parliament has endorsed plans for a new Market Abuse Regulation (MAR). Now that the MAR negotiations are complete, attention will turn to the proposed Directive.
Once finalised, the new Directive will complement the MAR in updating and strengthening the Market Abuse Directive, which dates back to 2003 and, as reported in an earlier blog, is lacking in certain respects.
The Market Abuse Regulation
The MAR focuses on the framework set up under the Market Abuse Directive, tightening it considerably to make sure that regulation keeps pace with market developments. It also strengthens the fight against market abuse across commodity and related derivative markets, harmonises certain key elements and, where possible, reduces the administrative burdens on SME issuers.
But to be effective, the Market Abuse Directive also needs a stronger enforcement regime, and so the MAR includes provisions to boost the investigative and administrative sanctioning powers of regulators.
Administrative sanctions
The MAR provides particular protection for whistleblowers and gives a range of new powers to supervisory authorities, to make sure that they have access to the information they need to detect and sanction market abuse.
The MAR also:
- introduces a new offence of "attempted market manipulation", to allow regulators to impose a sanction in cases where someone tries to commit market abuse;
- harmonises the principles behind the administrative sanctions;
- suggests minimum levels of fines; and
- where repeated breaches occur, gives authorities the power to impose permanent bans.
Criminal sanctions
Neither the MAR nor the Market Abuse Directive introduce criminal sanctions for market abuse, and until now it has been left to the individual Member States to decide whether or not to impose criminal sanctions - and the form that such sanctions should take.
The end result, according to the Commission, is that the regime is ineffective: Member States do not always use the same definitions of these crimes and their approaches are too divergent, allowing perpetrators to benefit from loopholes.
The Commission believes that EU-wide rules on market abuse criminal sanctions are needed and it proposes to use new powers under the Lisbon Treaty to bring them into effect. If approved, it will be the first time that common minimum rules on criminal law will ever have been adopted at the EU level.
The proposed Directive
In general terms, the proposed Directive requires Member States to take the necessary measures to ensure that the criminal offences of insider dealing and market manipulation are subject to criminal sanctions.
This will involve:
- Defining criminal offences at EU level. This will cover the offences of insider dealing and market manipulation which, following the recent LIBOR scandal, will include the manipulation of benchmarks;
- Requiring Member States to criminalise inciting, aiding and abetting insider dealing and market manipulation, as well as attempts at these forms of market abuse; and
- Extending the criminal or non-criminal liability to legal persons.
According to the Commission, Member States will have to ensure that criminal sanctions imposed for these offences are effective, proportionate and dissuasive.
As this is the first Directive of its type, the Commission will also include a review clause requiring it to report within four years to the European Parliament and Council. The report will focus on how the Directive is working, especially with regard to the appropriateness of introducing common minimum rules on types and levels of criminal sanctions.
It hopes to begin negotiations on the proposed Directive in October.
Contact Lewis Nedas’ Criminal Lawyers in London
If you think that you or your organisation could be affected by the rules relating to market abuse and require specialist legal advice, please contact our solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.
This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.
