EU-wide criminal sanctions for market abuse agreed

MEPs will vote through the final draft law to introduce EU wide criminal sanctions for market abuse in Strasbourg today (4 February). 

Vice President of the European Parliament's Economic and Monetary Committee and the lead negotiator on the market abuse law, Arlene McCarthy said: "The vote will mark a major step forward in ensuring market abuse is tackled across the EU. For the first time we will have EU wide tough criminal sanctions with a minimum jail sentence of four years for insider dealing and market manipulation, which leaves member states free to introduce high sanctions should they desire. The LIBOR scandal was market manipulation of the worst kind. We are seeing more alleged and potential manipulation of benchmarks in energy markets such as oil and gas and foreign exchange markets. Under the rules banks and financial institutions will now be criminally liable for market abuse, ensuring that these crimes are taken seriously."

Arlene added: “The new rules will come into place in 2016 and I hope that the UK Government will sign up to the new law. While the UK already has tough criminal sanctions in place, they do not apply to financial institutions and to date the law has not been used to take action against those who have been involved in interest rate rigging.”

On the detail of the deal Arlene added: “There are currently considerable differences between how member states sanction market abuse.  Harmonized minimum rules will ensure that perpetrators cannot exploit differences in regimes across the EU. Under the rules banks and financial institutions will now be criminally liable, ensuring that crimes of market abuse and their consequences are taken seriously.  Member States are also able to introduce criminal sanctions for recklessness which was a key factor during the financial crisis.”

Level of sanctions

For the first time, the EU will be setting minimum levels of criminal sanctions for market abuse. This is a major step forward in ensuring market abuse is properly tackled across the EU. Offences of insider dealing and market manipulation will be punishable of a maximum term of at least four years while offences of unlawful disclosure of inside information will be punishable by maximum term of at least 2 years. As this is minimum harmonization directive, member states can adopt more stringent rules to tackle market abuse.

Serious cases

Member states must take action to ensure that insider dealing, unlawful disclosure of inside information and market manipulation are criminal offences at least in serious cases and when committed intentionally. Explanation of what constitutes a serious case is provided in the Directive.

Damage to the wider economy and functioning of the market

When setting sanctions, Member states should take into account the profits made, losses avoided as well as the damage to the wider economy and the functioning of markets.

Publication of sanctions

Member states may publish sanctions when a final decision has been made. Publication of sanctions is an important deterrent against market abuse.

Recklessness

This is a first step to ensuring gross negligence and reckless behaviour which led to the financial crisis is taken seriously. Member states will have the option to provide that the market manipulation committed recklessly or by serious negligence constitutes a criminal offence.

Liability of legal persons (companies)

Under the new rules, legal persons, for examples investment firms,  operating in the financial services sector across the EU will be criminally liable for offences of market abuse. This is an important first step in holding companies criminally to account for market abuse offences.

Inciting, aiding and abetting

Inciting, aiding and abetting for the purposes of market abuse will now be a criminal offence across Europe.

Training and investigative tools

Member states will need to ensure their judicial authorities and regulators are properly trained to monitor, investigate and tackle market abuse. Member states should take necessary measures to ensure that law enforcement, judicial authorities and regulators have the possibility to make use of effective investigative tools.

Member states will have two years to transpose the rules into national law. The rules will come into place in 2016.

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