Market abuse: EU enacts criminal sanctions to defend market integrity

14 Apr, 2014

The European Commission welcomes formal adoption by the Council of its proposal for a Regulation on market abuse and its proposal for a Directive on criminal sanctions for market abuse. This follows the European Parliament’s plenary votes backing the Regulation on 10 September 2013 and the Directive on 4 February 2014.

Vice-President Viviane Reding, the EU’s Justice Commissioner, and Internal Market and Services Commissioner Michel Barnier said: “The adoption sends a strong zero tolerance warning to those engaging in insider dealing and market manipulation. It demonstrates Europe’s commitment to protect the integrity of its financial markets and deter criminals who want to make money by deliberately manipulating information. Administrative authorities will now have greater powers to investigate market abuse and to impose fines of up to millions of euro, while those found guilty of market abuse will be deterred by the prospect of facing jail across the Union. We now need to pass from laws to action: Member States should swiftly implement these new rules so criminals have no place to hide in Europe.”

Next steps: After the signature of the Regulation and the Directive by the Presidents of the European Parliament and the Council and their publication in the Official Journal, expected in June, there will be a 24 month period for the adoption of implementing measures by the Commission concerning the Regulation and for Member States to implement the Directive in national law.

The adoption of the Regulation means that:

  1. Existing market abuse rules will be broadened to include abuse on the electronic trading platforms that have proliferated in recent years;
  2. abusive strategies enacted through high frequency trading will be clearly prohibited;
  3. those who manipulate benchmarks such as LIBOR will be guilty of market abuse and face tough fines;
  4. market abuse occurring across both commodity and related derivative markets will be prohibited, and cooperation between financial and commodity regulators will be reinforced;
  5. the deterrent effect of the legislation will be far greater than today, with the possibility of fines of at least up to three times the profit made from market abuse, or at least 15% of turnover for companies. Member-States could decide to go beyond this minimum.

The adoption of the Directive means that:

  1. There will be common EU definitions for market abuse offences such as insider dealing, unlawful disclosure of information and market manipulation;
  2. there will be a common set of criminal sanctions including fines and imprisonment of at least four years for insider dealing/market manipulation and two years for unlawful disclosure of inside information;
  3. legal persons (companies) will be held liable for market abuses;
  4. Member States need to establish jurisdiction for these offences if they occur in their country or the offender is a national;
  5. Member States need to ensure that judicial and law enforcement authorities dealing with these highly complex cases are well trained.

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