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Strengthening sanctions for violations of EU financial services rules: the way forward
The European Commission has adopted a communication setting out possible ways to reinforce sanctioning regimes in the EU's financial services sector.
Today, rules vary greatly between Member States and, arguably, often do not serve as an effective deterrent.
Based on a review of national sanctioning regimes for violations of national rules transposing some of the most important EU directives relating to financial services, the Communication presents areas for improvement and suggests possible EU actions in order to achieve greater convergence and efficiency of these regimes.
Interested stakeholders can send their contributions up until 19 February 2011.
Internal Market and Services Commissioner Michel Barnier said: "If a financial institution does not abide by EU rules in the area of financial services, traders and executives must realise that they won't get away with it and that the response will be tough, wherever in Europe the violation occurs. Now, too often, that is not the case.
Today's Communication sets out a way forward to ensure that sanctioning powers will be stronger and more convergent across Europe so we can better protect citizens' interests."
The Communication is based on a cross-sectoral stocktaking exercise of the coherence, equivalence and actual use of sanctioning powers in the Member States carried out by the three Committees of Supervisors (Committee of European Banking Supervisors - CEBS, Committee of European Insurance and Occupational Pensions Supervisors - CEIOPS and Committee of European Securities Regulators - CESR).1
The exercise covered some of the most important Directives applicable in the financial sector including securities, banking and insurance legislation.
Key elements of the Communication:
1. Sanctioning rules diverge greatly across Member States
The financial crisis has shown that financial market rules are not always respected and applied as they should be across the Union. Ensuring proper application of EU rules is first and foremost the task of national authorities, who have the responsibility to prevent financial institutions from violating EU rules, and to sanction violations within their jurisdiction. But national authorities need to act in a coordinated and integrated way.
The Communication finds that sanctions provided for by Member States diverge in key aspects such as the types of sanctions available and the level of fines. This matters as when the rules that need to be abided by are Europe-wide, it makes sense for the response to their violation to also be coherent at European level. There could be a risk of companies or individuals doing business where sanctions are weakest or least likely. The current system does not always seem to be optimal in terms of effectiveness, proportionality, and dissuasiveness.
2. Suggestions for convergence and reinforcement of sanctioning regimes
The divergences highlighted in the Communication may create distortions of competition in the Internal Market. But, decisively, those divergences may also create the risk of undermining consumer protection, market integrity, and confidence in the financial sector. Lack of enforcement of EU rules in one Member State may have significant implications for the stability and functioning of the financial system in another Member State.
The Commission therefore holds the view that in order to prevent the risk of improper functioning of financial markets, further convergence of sanctioning regimes is necessary.
This could be achieved by setting common minimum standards for certain issues that are key for effective, proportionate, and deterrent sanctioning regimes.
This could include the types of sanctions available, including considering the option of criminal as well as civil sanctions; the level of those sanctions; the availability of sanctions both against financial institutions and individuals responsible for violations; and the publication of sanctions.
The Commission welcomes comments on the policy proposals presented in the Communication.
Contributions should be sent to firstname.lastname@example.org by 19 February 2011. On the basis of the comments received, the Commission will decide in 2011 on possible proposals on how to reinforce sanctioning regimes.
Strengthening sanctioning regimes is one of the elements of the financial sector reform. It complements other strands of work already being phased in or of a more 'preventative' nature, including effective supervision and corporate governance.
As recognised in the de Larosière report: "Supervision cannot be effective with weak, highly variant sanctioning regimes. It is essential that within the EU and elsewhere, all supervisors are able to deploy sanctioning regimes that are sufficiently convergent, strict, resulting in deterrence."2
Efficient and sufficiently convergent sanctioning regimes are the necessary corollary to the new European Supervisory Authorities (see MEMO/10/434) which will be set up on 1 January 2011, and will bring about improvements in the coordination of national authorities' enforcement activities.
The issue of more effective sanctions is also agreed at global level. In the summit held in Washington on 15 November 2008, G20 leaders agreed on the implementation of an Action plan for Reform of financial markets including actions aimed at protecting markets and investors against illicit conduct and ensuring that appropriate sanctioning regimes are in place. Increasing regulatory enforcement and remedies is also one of the objectives of the recent US financial regulation reform.
More information is available at:
2 : Report of the High-level Group on Financial supervision in the EU chaired by Jacques de Larosière, 25.2.2009, par.201.