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MiFID II 

Powers of investigation, Remedies and Sanctions 

01 December 2011

Impact Red traffic light

Medium/high – proposed new powers of regulators (particularly regarding restricting trading in commodity derivatives) potentially draconian

Other areas to consider

 

Current MiFID rules

Member States are required to impose appropriate administrative sanctions, or take appropriate administrative measures, where provisions of MiFID are breached.

Measures should be:
(i) effective;
(ii) proportionate; and
(iii) dissuasive.

But Member States have freedom to impose the measures that they think appropriate, including criminal sanctions where appropriate.

MiFID Level 1 Directive Art: 51

FSA rules

DEPP 6, the Enforcement Guide

Proposed changes 
Draft Directive
Recitals (91) to (97)
Articles 71 – 80

The Commission is concerned that the powers to sanction and the use of available powers vary widely across Member States and are in some instances too weak.

The draft Directive therefore proposes to introduce more defined measures meaning Member States would have less flexibility, including at least the following:

  • Ensuring that sanctions that apply to firms and market operators also apply to their management bodies, as well as other individuals or undertakings responsible for the violation.
  • New rights to demand information (including relevant documents) from any person regarding the size/purpose of a derivative position or exposure and any assets or liabilities in the underlying market.
  • Appropriate administrative measures to be made available to regulators including: injunctions to put an end to an infringement, temporary prohibition of an activity, suspension of trading or removal from trading of a financial instrument, require persons whom a regulator has demanded information from regarding the size/purpose of a derivative position or exposure to reduce their position, to limit the ability of any person from entering into a commodity derivative (including by introducing non-discriminatory limits on positions)freezing/sequestration of assets and the issuance of public notices on the website of competent authorities.
  • Regulators to have the power to ask a judicial authority for authorisation to enter private premises and to seize documents relevant for enforcement action.
  • Pecuniary sanctions in the case of a legal person, up to 10% of the total annual turnover in the preceding year (calculated on a consolidated basis); for natural persons, pecuniary sanctions of up to EUR 5,000,000 (or the equivalent); for both firms and individuals, fines of up to twice the benefit derived where this can be determined. ESMA is to produce guidelines for regulators on types of administrative measures, sanctions and level of pecuniary sanctions. Regulators to publish details of any sanction or measure imposed for breaching the draft Directive or Regulation.
  • Regulators must take into account all relevant circumstances when deciding on the type and level of administrative sanctions, including e.g. the gravity and duration of the breach, the losses for third parties, in so far as they can be determined.
  • Regulators to encourage “whistle blowing” amongst employees, including to establish procedures for the receipt of reports and their follow up and protection of whistle blowing employees in financial institutions.
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