Presently, Member States are free as regards the choice and application of sanctions regimes for violations of national rules transposing EU directives related to financial services, however according to the European Commission “this autonomy should be balanced with the need for effective and consistent application of European law.” The Commission has found that the type of sanctions vary from Member State to Member State as well as the level of fines. Particularly, the European Commission noted that the existing sanctions to fight market abuse offences “are lacking impact and are insufficiently dissuasive”. According to the European Commission the definition of which insider dealing or market manipulation offences constitute criminal offences vary considerably across Member States, and not all Member States impose criminal sanctions for both insider trading and market manipulation. Nevertheless, Member States are best placed to deem which breaches should be subject to criminal sanctions. Hence, they should be allowed to decide whether a particular offence should be treated as a criminal offence.
However, in October 2011, the European Commission presented a draft directive on criminal sanctions for insider dealing and market manipulation. The draft directive lays down minimum rules for criminal sanctions for the most serious market abuse offences, i.e. insider dealing and market manipulation. Member States would be therefore required to subject the criminal offences of insider dealing and market manipulation to criminal sanctions, as well as for inciting, aiding and abetting market abuse, and for attempts to commit these offences.
It is important to recall that under Article 83 TFEU “if the approximation of criminal laws and regulations of the Member States proves essential to ensure the effective implementation of a Union policy in an area which has been subject to harmonisation measures, directives may establish minimum rules with regard to the definition of criminal offences and sanctions in the area concerned.” This provides the legal basis for the Commission to introduce such measures. In fact, this is the first time the Commission is using such powers under the Lisbon Treaty allowing it to introduce criminal sanctions to enforce an EU policy. It is important to note that harmonization of criminal law, including the present proposal, is decided by QMV through the ordinary legislative procedure.
The UK’s criminal law already includes the offences of market abuse outlined in the proposal, and the Government is mostly supportive of the measures. The UK Government has decided not to opt-in to this proposal for the time being due to the difficulty of assessing with certainty the scope and implications of the proposal, particularly, according to the Financial Secretary to the Treasury, Mark Hoban, “until it is clear that related provisions within the Markets in Financial Instruments Directive Review and the Market Abuse Regulation are further progressed in order to enable the Government to evaluate the implications for the UK”. Hence, it is important to mention, that the Government is planning to opt into the directive at a later date. In this way, the Government would cede jurisdiction in this area to the European Court of Justice. Once the UK decides to opt in, it would be subject to the Commission enforcement powers and to the ECJ jurisdiction. Consequently, the European Scrutiny Committee is concerned the Government is considering opt into the proposal once it is adopted. As Bill Cash noticed, “there will be considerable difficulty and trouble for the City of London if we do opt in.” He stressed, “I do not believe that the directives are in the interests of the United Kingdom. We can legislate on these matters ourselves.” According to Bill Cash “There is much talk of fiscal union, banking union, supervisory authorities and the wholesale transfer of our jurisdiction over the City of London, which means so much to our gross domestic product and to our ability to compete internationally. That is being undermined by proposals of this kind, whether or not they are brought into effect.”
As above-mentioned, under the draft proposal Member States would be required to introduce criminal sanctions for the most serious market abuse offences. The European Commission’s original proposal defined two forms of market abuse conduct, i.e. insider dealing and market manipulation, which should be regarded as criminal offences by Member States, when committed intentionally, and be subject to criminal sanctions.
Article 293(2) TFEU authorises the Commission to amend its proposals, during the legislative procedure, if the Council has not acted yet. Hence, immediately after the Libor scandal, the European Commission decided to amend the draft proposals on market abuse aiming at closing regulatory loopholes and ensuring that criminal sanctions include the altering of indices, such as Libor and Euribor. The European Commission has therefore adopted amendments to the present proposal to cover manipulation of benchmarks including LIBOR and EURIBOR and to make intentional manipulation of benchmarks a criminal offence. Hence, Member States would be required to criminalise intentional manipulation of benchmarks and provide for criminal sanctions.
As Bill Cash pointed out “definitions in relation to European legislation raise the question of how this matter will be adjudicated on by the European Court of Justice.” According to Bill Cash “The question of what the draft directive means by the word “intentionally” in relation to market abuse raises some very important legal issues” as well as “whether the draft directive would apply automatically if there were proof of intent or whether there would be discretion to apply an administrative penalty rather than a criminal one.” He stressed, “Those are all matters on which we could legislate on our own account if we wished to do so.”
The draft proposal would also required Member States to punish as a criminal offence the attempt to commit any of the offences above-mentioned as well as inciting, aiding and abetting.
Member States would be required to ensure that these criminal offences are punishable by criminal sanctions. For the time being, member states are still allowed to decide the level of the sanctions, which “should be effective, proportionate and dissuasive.” However, Viviane Reding has already pointed out if Member States fail to apply sanctions, the Commission will consider to introduce levels of sanctions. In fact, the proposal includes a review clause which states “By [4 years after entry into force of this Directive], the Commission shall report to the European Parliament and the Council on the application of this Directive and, if necessary, on the need to review it, in particular with regard to the appropriateness of introducing common minimum rules on types and levels of criminal sanctions.”
