26 April 2012

ESMA identifies divergence in Member States’ use of sanctions under the Market Abuse Directive

ESMA has published a report on the use of administrative and criminal sanctions by European Union (EU) national regulators under the Market Abuse Directive (MAD). 

The Market Abuse Directive is aimed at combating cross-border market abuse across the EU, by establishing a common approach amongst Member States which will support clean, fair and orderly markets, and maintain investor confidence in their integrity. This work supports ESMA’s work on achieving consistent regulatory practices across the EU.

The report compared Member States market abuse regimes across a number of categories, which were:

• the type of sanctioning powers available to competent authorities (CAs) and against whom and for which offences they were applicable;
• the resources allocated by CAs to this issue; and
• the actual use of sanctioning powers available – settlement, administrative and criminal sanctions and publication.

Mr Maijoor, Chair of ESMA, said: “ESMA believes that the availability and use of sanctioning powers by market regulators is an important factor in supporting clean and fair markets across the EU. However, today’s report indicates that, while most authorities have made use of these powers, differences remain in their availability, regulators’ ability to use them and the allocation of resources." 

"We believe that this report highlights a number of areas for improvement, which could assist national authorities in calibrating their regimes to achieve the desired outcome of a consistent pan-EU application of the sanctions regime and a harmonised approach to market abuse.”

Key findings

The reports key findings include:

• Insider dealing fines - the size of the penalties varied between those imposed on individuals – ranging from €64 to €6,000,000 – and those imposed on companies – ranging from €2,545 to €1,800,000;
• Market manipulation fines– the size of penalties varied from €100 to €1,500,000 for individuals, and from €575 to €5,000,000 for companies;
• Availability of Sanctions - 26 Member States provide for both administrative and criminal sanctions;
• Use of Sanctions – 24 Member States made use of their power to impose sanctions during this period;
• Imprisonment – the length of imprisonment imposed in Member States, for insider dealing violations, varied from under one year to three years. For market manipulation this varied from one year to four years;
• Staff - the report identifies differences in the organisation and the number of authorities’ staff dedicated to tackling market abuse, covering market supervision to the imposition of administrative sanctions. The number of staff dedicated to this range of activities varied from two to 127 staff members;
• Key criteria to determine the type and the level of sanctions – authorities took into account a range of factors with the most widely used being the seriousness of the violation; the amount of financial benefits; the cooperative behaviour; financial strength and/or size; duration; impact on market and consumers; degree of culpability; repetitive nature; and level of responsibility/seniority).
• Settlements - Member States consider this as an efficient way of dealing with market abuse. However, the concept itself varies to a considerable degree e.g., in some Member States settlement decisions may be subject to review (administrative or judicial), whereas in others, one of the consequences of closing a case by means of settlement is that a review will be precluded.

The Commission is currently reviewing the EU regime dealing with market abuse and a proposal to enhance the administrative and criminal sanctioning of market abuse (MAD II).

Full report

© ESMA