EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 8.12.2010 
SEC(2010) 1497 final 
  
COMMISSION STAFF WORKING PAPER 
SUMMARY OF THE IMPACT ASSESSMENT  
 
 
Accompanying document to the 
  
COMMUNICATION FROM THE CO MMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMI TTEE OF THE REGIONS 
 
Reinforcing sanctioning regimes in  the financial services sector 
  
{COM(2010) 716 final} 
{SEC(2010) 1496 final} 
EN 2   EN 1. INTRODUCTION  
The financial crisis has put into question whethe r financial market rules are always respected 
and applied as they should be.  
Following the political mandate received  from the ECOFIN Council in 2007, the 
Commission, along with the Committees of Supervis ors conducted a review of the coherence, 
equivalence and actual use of sanctioning pow ers among Member States (MS), in the 
European financial services sector.  
2. PROBLEM DEFINITION  
The preliminary analysis carried out on th e basis of the information provided by the 
Committees of Supervisors shows certain divergences and weaknesses in national 
sanctioning regimes , which do not seem to always ensure sanctions are sufficiently effective, 
proportionate and dissuasive.  
The levels of administrative pe cuniary sanctions vary  widely across MS and seem too small in 
some MS, including for the same type of infr ingement. In the financial sector, where a 
number of potential offenders ar e financial institutions with cons iderable turnovers, fines of a 
few thousand Euros do not seem to be sufficiently dissuasive.  
Some MS do not have at th eir disposal important type s of sanctioning powers (e.g. 
withdrawal of authorisation) fo r certain infringement, which ma y be necessary to effectively 
sanction violations.  
Divergences exist as to the type of persons w ho may be sanctioned: in some MS sanctions are 
not applicable to natural persons or to legal persons. Therefore, they  will be treated in 
different ways as regards a specific violation, depending on th e MS where it is committed.  
The criteria taken into account to determine the level of the sanctions imposed vary 
substantially and do not always include factors (e.g. the benefits derived from the violation) 
which are important to ensure proportio nality and dissuasiveness of sanctions. 
Some MS provide for criminal sanctions for cer tain violations while other MS provide for 
administrative sanctions only. Criminal sanction s send out a strong message  of disapproval to 
individual offenders and could have  an important dissuasive effect. 
A certain divergence exists in the level of app lication of sanctions in different MS, including 
those having banking and insuranc e sectors of similar size.  
Problems identified  
The divergences and the weaknesses described above may:  
1. render the sanctions for breaches of EU financial services legislation insufficiently 
effective, proportionate and dissuasive ;  
2. create distortions of competition in the Internal Market ; and  
3. have a negative impact on financial supervision .  
EN 3   EN These problems can result in a lack of compliance with EU financial services rules, which 
can increase the risk of market manipulation an d lack of transparency, and can ultimately be 
detrimental to the proper functi oning of financial markets.  
This situation risks seriously undermining consumer protection and market integrity, and 
can negatively affect  the whole economy.  
This situation also risks undermining confidence in the financial sector .  
3. ANALYSIS OF SUBSIDIARITY  
Convergence of national sanctioning regimes s eems necessary to promote dissuasiveness of 
sanctions thereby ensuring level playing field, uniform applicati on of EU financial services 
legislation, and full cooperation between nationa l supervisors across th e EU. These objectives 
can be better achieved through EU action rather than by different natio nal initiatives. Better 
application of the existing sa nctioning powers by competent au thorities at national level 
would not be sufficient to achie ve sufficient convergence.  
4. OBJECTIVES OF EU INITIATIVE  
EU action could satisfy the followi ng general polic y objectives:  
• Restored confidence in the financial sector 
• Better protection of users of financial services 
• Safety, stability and integrity of financial markets 
• Compliance with EU financial rules contri buting to a proper func tioning of financial 
markets. 
Reaching these objectives requires the realis ation of the following specific objectives: 
• The effectiveness, proportionality  and dissuasiveness of sanctions 
• The development of a level playing field reduc ing the opportunities fo r regulatory arbitrage 
• The effective supervision of financial institutions. 
5. POLICY OPTIONS , IMPACT ANALYSIS AND COMPARISON  
The analysis is at this stage limited to a general assessment of the possible options to 
approximate and reinforce national sanctioning regimes. Policy options considered do not 
deal with specific measures needed in the sp ecific sectors concerned (banking, insurance, 
securities), which will be assessed when  the Commission makes firm proposals.  
5.1. Policy options relating to the content of the measures 
Five issues for potential EU action have been  identified. For each issue, different policy 
options have been analysed and compared. 
EN 4   EN ISSUE 1: Type of administrative sanction  and level of administrative pecuniary 
sanctions  
The issue concerns the type a nd the level of administrative sa nctions envisaged in national 
legislation.  
Options 
1: no EU action 
2: minimum common provisions on type of administrative sanctions a nd level of pecuniary sanc tions for key violations 
3: uniform type of administrative sanctions and level of pecuniary sancti ons for key violations 
4: uniform type of administrative sa nctions and level of pecuniary sanc tions across EU for all violations 
Under Option 1 , MS would hardly be willing to compare type of sanctions and level of 
pecuniary sanctions they envisage with thos e envisaged in other MS, and to question the 
effectiveness of their own regi me. Divergences would persist. 
Option 2  would help to ensure that violations are dealt with in a similar way in all MS, which 
reinforces the development of a level playing fi eld in European financial markets. This would 
increase consumer confidence and may lead to mo re cross border selling of financial services 
products. Providing competent authorities with  equivalent minimum sanctioning powers 
would improve cross-border supervision. Dissuasiv eness of sanctions would increase at least 
in the MS which currently have too low levels  of sanctions. Risks of violations of EU 
legislation would be reduced, to the benefit of consumer protection, competition between 
financial institutions, safety and integrity of financial markets. MS would be allowed to go 
beyond the EU minimum criteria and to adapt sanc tions to the specificities of the different 
national legal systems. Changes in national legisl ations would be requir ed only in certain MS. 
Compliance costs for MS are expected to be limited.  
Option 3 would be effective in ensuring a level play ing field as it would reduce the potential 
for financial services providers  to engage in regulatory arb itrage between the sanctioning 
regimes in place in different Member States. It would increase the dissuasive effect of 
sanctions and consequently reduce risks of violations of EU law,  which would be beneficial to 
consumer protection, competition, safety and integrity of financial markets. However, 
Member States would not be able to provide for further types of sanctions or higher levels of 
fines than those provided for in the uniform  EU framework. This option would probably 
require significant changes in  all national legislations. 
Option 4  would be the most effective in terms of  ensuring level playing field and increasing 
trust between supervisors, as it would elimin ate any divergence. However, it would probably 
require major changes in all national legisla tions and would eliminat e any flexibility in 
dealing with violations of EU law. Complia nce costs could be signi ficant and the uniform 
regime could not fit national legal sy stem and culture in different MS.  
EN 5   EN ISSUE 2: Addressees of administrative sanctions  
This issue deals with the possibility to apply sanctions to natural pe rsons and/or to legal 
persons, responsible for a violation of EU financial services rules.  
Options 
1: no EU action 
2: sanctions applicable to both natural and legal persons 
Under Option 1 , MS would probably not extend the pers onal scope of sanctions as currently 
provided in their legislations , which would probably not ensu re optimal dissuasiveness.  
On the contrary, Option 2 would significantly increase dissu asiveness of sanctions, which 
would ensure better compliance with EU legislation, with positive impacts on consumer protection, fair competition, safety and integrity of financial markets. This option would have 
a positive impact on the level playing field in the European financial market, and would increase consumer confidence and mutual trus t between supervisors. Legislative measures 
would be required only in MS where the scop e of sanctions does not cover both natural and 
legal persons.  
ISSUE 3: Factors taken into account  when determining the sanctions 
 
This issue concerns the elements considered by competent authorities when deciding the type 
of administrative sanctions and/or the amount of  the administrative pecuniary sanction to be 
applied to the author of a specific violation.  
Options 
1: no EU action 
2: some key factors to be taken into account by all authorities 
3: list of exhaustive and identi cal factors to be taken into account by all national authorities 
Under Option 1 , while all MS take into account the gravity of the violation, other factors 
would be taken into account only in some MS or  for certain violations. This would probably 
be insufficient to ensure optimal dissuasiveness.  
Option 2 would permit to better adapt the sanctions imposed to th e impact of the violation 
and the personal conditions of the offenders, whic h would help ensuring their effectiveness, 
proportionality and dissuasivene ss. Increased convergence in th e way sanctions are applied 
across Europe would ease the c ooperation between competent authorities. Proportionality of 
sanctions would be better ensured and dissuasiv eness of sanctions will be increased, which 
would reduce risks of violations  of EU. Taking into account th e cooperative behaviour of the 
offender would help in detecting violations. Compliance costs for MS are expected to be 
limited. 
Under Option 3  uniformity in the way sanctions are ap plied would ensure better cross border 
supervision. Uniform applicati on of the factors foreseen in option 2 would have the same 
impacts as option 2, in  terms of proportionality and dissuas iveness of sanctions and better 
detection of infringements. Howe ver, the list would include only factors that can be applied in 
EN 6   EN the same way in all national legal systems, whic h would preclude the possi bility to take also 
into account other factors possibl y relevant in some legal syst ems. Compliance costs may be 
significant, as this option implies a revision of  all provisions concerni ng the way sanctions are 
applied.  
ISSUE 4: criminal sanctions  
This issue concerns the applicati on of criminal sanctions to viola tions of EU financial services 
legislation.  
Options 
1: no EU action 
2: introduction of criminal sanctions  for the most serious violations 
Under Option 1, it is unlikely that MS would revise thei r criminal laws in order to achieve 
further convergence in that area.  
Option 2  would send out a strong message of disappr oval that could increase dissuasiveness 
of sanctions and have a positive impact on th e public perception of the appropriateness of 
sanctions. Not all violations woul d be subject to criminal penalties but only the most serious 
ones, for which criminal sanctions are the most efficient, effective, and dissuasive tool to 
achieve the proper enforcement of EU financial services rules. Criminal sanctions would be 
provided for only in areas where this is strictly necessary.  
ISSUE 5 EU action to support ef fective application of sanctions  
This issue concerns the mechanisms that MS may put in place to improve the application of 
sanctions, particularly detecti on of violations. EU action e nvisaged would focus on (1) key 
powers and investigatory tools provided to al l competent authorities, and (2) cooperation 
between national authorities.  
Options 
1: Coordination by ESAs - no additional EU action 
2: additional EU action to ensure all MS provide for key investigatory powers and tools,  
Under Option 1,  while certain MS would continue to provide for rules on whistleblowing, the 
large majority of them would probably no t put in place consistent and predictable 
programmes to protect whistleblowers and to ex empt them from sanctions when they are 
involved in the infringement (leniency progr ammes). The objective of reinforcing national 
sanctioning regimes could be achieved to a cert ain extent through the co ordination activity of 
the new European Supervisory Authorities.  
Option 2 would be more effective in  terms of better enforcement of sanctions, as new 
instruments would be available to  detect violations. When viol ations are regularly detected 
and punished, dissuasiveness and effectivene ss of sanctions would be increased. The 
perception that the authors of infringements are usually discovered and effectively punished 
would also restore confidence in the financial sector.  
EN 7   EN 5.1.1.  Preferred policy options package 
The following options have been selected  for the five issues addressed:  
• ISSUE 1: introducing minimum common criteri a on type and level of administrative 
sanctions. 
• ISSUE 2: sanctions applicable to  both natural and legal persons. 
• ISSUE 3: some key factors taken into  account by all nati onal authorities.  
• ISSUE 4: introduction of criminal sancti ons for the most serious violations. 
• ISSUE 5: reinforcement of mech anisms facilitating detection of infringements/enforcement 
sanctions. 
5.2. Options relating to the nature of the measures 
Four options have been considered as to the nature of the measures that may be taken to 
implement the set of policy opti ons identified in section 5.1.  
• Option 1: non binding measures facilitati ng approximation of sanctioning regimes  
In the absence of any obligation, it would not be ensured that all MS take all measures 
required, and the relevant issues would be probably dealt with differently by each MS.  
• Option 2: minimum approximation of sanc tioning regimes - sectoral approach 
This option appear to be very effective, as  it would permit to introduce the provisions which 
are the most appropriate in th e specific sector, and for the sp ecific EU legal act concerned. 
MS would still enjoy discretion in the choice and application of sanctions and would be 
allowed to provide for rules more stringent th an the minimum standards. This option would 
not necessarily require important changes in national sanctioning regimes. 
• Option 3: minimum approximation of sanctioni ng regimes – cross-sectoral approach 
This option would allow for the implementation of  the policy options sel ected for all issues 
except for the issue 4, as a sectoral approach seem essential to identify the most serious violations for which criminal sanctions are n ecessary. As the EU fram ework could cover very 
general issues only, MS  would maintain considerable di scretion in implementing the common 
rules, which would reduce the e ffectiveness of this option.  
• Option 4: full approximation of sancti oning regimes – sectoral approach 
This option is in any case excluded for issue 4, gi ven that the European legislator has not the 
power to fully harmonise criminal sanctions . Full approximation of sanctioning regimes 
would not be suitable for the implementation of the policy measures selected for the issues 1 
and 3, which exclude the introduction of uniform rules.  
EN 8   EN 5.2.1.  Preferred policy instruments  
The most appropriate option is considered to  be a legislative action aiming at minimum 
approximation of national sanctioning regimes, covering potentially a ll the issues to be 
addressed.  
The most effective approach is considered to  be the sectoral approach, which could be 
combined with the cross-sectoral approach by establishing some basic principles common to 
all sectors. 
6. MONITORING AND EVALUATION  
The policy options selected will  be presented in the Communication in order to allow all 
stakeholders to comment on the actions proposed . The Commission will ev aluate the feedback 
received and take it into account when  coming forward with firm proposals.