COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Reinforcing sanctioning regimes in the financial services sector
Date: 2010-12-08
Institutions: European Commission
Subjects: banking policy, financial control, financial market, monetary crisis, sanction (EU)

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EUROPEAN COMMISSION 

Brussels, 8.12.2010 
COM(2010) 716 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Reinforcing sanctioning regimes in the financial services sector 

{SEC(2010) 1496 final} 
{SEC(2010) 1497 final} 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Reinforcing sanctioning regimes in the financial services sector 

1. 

INTRODUCTION 

The European Union's work on constructing the single market for financial services has made 
progress  towards  a  harmonised  framework  of  prudential  rules  and  rules  of  conduct  for 
financial institutions, which should ensure safety, stability and integrity of financial markets. 

The financial crisis has put into doubt whether financial market rules are always respected and 
applied as they should be across the Union. 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. It is therefore essential to ensure a consistent and effective 
application of EU rules in all Member States.  

The Commission has been working on a comprehensive reform of the financial sector aiming 
at ensuring the soundness and stability of the financial system. In particular, the recent reform 
of  the  supervisory  architecture  will  allow  better  monitoring  of  financial  markets  and  better 
safeguard of market stability, security and integrity.  

Efficient  and  sufficiently  convergent  sanctioning  regimes  are  the  necessary  corollary  to  the 
new  supervisory  system.  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"1. 

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  new  European  Supervisory  Authorities  (ESAs)  will 
bring about improvements in the coordination of national authorities' enforcement activities2. 

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Report  of  the  High-level  Group  on  Financial  supervision  in  the  EU  chaired  by  Jacques  de  Larosière, 
25.2.2009, par. 201. 
In November 2010, the European Parliament and the Council adopted legislative acts establishing a new 
supervisory  framework  for  financial  regulation  in  Europe,  including  the  creation  of  the  European 
Securities  and  Markets  Authority  (ESMA),  the  European  Banking  Authority  (EBA),  and  the 
Occupational  Pensions  Authority  (EIOPA),  see  COM(2009)  499,  COM(2009)  501  and  COM(2009) 
502.  These  Authorities  will  have  powers  to  carry  out  peer  reviews  of  national  authorities  including 
sanctioning powers, and will receive information about sanctions applied by national authorities. Those 
powers  can  be  used  to  monitor  national  legislation  and  to  promote  exchange  of  information  and  best 
practices between Member States. They have also the power to settle disagreements between national 
authorities,  in some  areas  that  require  cooperation,  coordination  or joint  decision-making  by different 
supervisory  authorities.  In  its  Proposal  on  amending  Regulation  (EC)  No  1060/2009  on  credit  rating 
agencies  -  COM(2010)  289  -,  the  Commission  also  proposes  to  entrust  the  European  Securities  and 
Markets Authority with the power to take appropriate supervisory measures in case of infringements of 

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Moreover, a proper enforcement of EU legislation requires that all national authorities have at 
their disposal appropriate sanctioning powers.  

In  this  context,  the  ECOFIN  Council  asked  the  Commission  and  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)  to  conduct  a  cross-sectoral  stocktaking  exercise  of  the 
coherence, equivalence and actual use of sanctioning powers in the Member States, in order to 
help determining whether sanctioning regimes are sufficiently equivalent3. The studies carried 
out by the Committees of Supervisors cover the sanctions applied by the Member States for 
violations of national rules transposing some of the most important EU directives applicable 
in the banking, insurance and securities sectors4. Following this exercise5, the Commission's 
Communications  of  4 March  2009  and  of  2  June  20106  announced  a  Communication  on 
sanctions in the financial services sector to promote convergence of sanctions across the range 
of the supervisory activities.  

At  the  international  level,  strengthening  sanctioning  regimes  is  one  of  the  elements  of  the 
financial sector reform. 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.7Increasing regulatory enforcement and remedies 
is also one of the objectives of the recent US financial regulation reform8. 

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the Regulation and to ask the Commission to impose on a credit rating agency a fine in some specific 
cases. 
The  European  Council,  in  its  "Stockholm  Programme  –  an  open  and  secure  Europe  serving  and 
protecting citizens" of 2.12.2009, emphasised the need to regulate financial markets and prevent abuse 
and invited the Member States and the Commission to improve the detection of market abuse and the 
misappropriation of funds. The JHA Council conclusions on economic crisis prevention and support for 
economic  activity,  stressed  that  consideration  could  be  given  to  whether  it  is  possible  or,  as  the  case 
may  be,  appropriate  to  harmonise  criminal  laws  regarding  the  handling  of  serious  stock  market  price 
manipulations and other misconduct relating to securities markets. See Docc. 8920/10 of 22.4.2010 and 
7881/10 of 29.3.2010. 
Capital Requirements Directive 2006/48/EC (OJ L 302, 17.11.2009); Markets in financial instruments 
Directive 2004/39/EC (OJ L 145, 30.4.2004); Market Abuse Directive 2003/6/EC (OJ L 96, 12.4.2003); 
Solvency  II  Directive  2009/138/EC  (OJ  L  335,  17.12.2009);  Prospectus  Directive  2003/71/EC  (OJ  L 
345,  31.12.2003);  Insurance  Mediation  Directive  2002/92/EC  (OJ  L  9,  15.1.2003);  Anti-Money 
Laundering  Directive  2005/60/EC  OJ  L  309,  25.11.2005);  UCITS  Directive  2009/65/EC  (OJ  L  302 
17.11.2009).  
CEBS:  "Mapping  of  supervisory  objectives,  including  early  intervention  measures  and  sanctioning 
powers", March 2009/47, CESR: "Report on administrative measures and sanctions as well as criminal 
sanctions available in Member States under the Market Abuse Directive", 17.10.2007; "Report on the 
mapping of supervisory powers, supervisory practices, administrative and criminal sanctioning regimes 
of MS in relation to the MiFID Directive; 16.2.2009, 08/220, "Report on CESR members' powers under 
the Prospectus Directive and its implementing measures" June 2007, 07-384; CEIOPS: "Report to the 
European  Commission  on  EU  supervisory  powers,  objectives,  sanctioning  powers  and  regimes", 
29.5.2009,  21/09.  This  Communication  is  based  on  the  information  provided  in  those  reports  and  the 
contributions subsequently received from Member States.  
COM(2010) 301. 
Subsequent  G20-meetings  called  for  the  need  to  strengthen  financial  supervision  and  regulation  to 
promote,  among  others,  market  integrity  and  support  market  discipline  (London,  April  2009)  and  for 
actions  to  protect  consumers,  depositors  and  investors  against  abusive  market  practices  (Pittsburgh, 
September 2009) 
The  Dodd-Frank  Wall  Street  Reform  and  Consumer  Protection  Act,  (July  2010)  provides  a 
comprehensive  reform  of  the  American  financial  system.  Its  practical  implementation  is  subject  to  a 

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Based  on  the  above  studies  of  the  Committees  of  Supervisors  and  the  discussions  with 
Member  States,  this  Communication  presents  areas  for  potential  improvement  identified  in 
the  review  of  national  sanctioning  regimes,  suggests  possible  EU  actions  to  achieve  greater 
convergence  and  efficiency  of  these  regimes,  and  invites  all  stakeholders  concerned  to 
comment on the actions proposed.  

On the basis of the feedback received, which will feed the debate on the role of sanctioning 
regimes in relation to further legislation, and following a thorough impact assessment of the 
relevant  sanctions  related  issues,  the  Commission  will  consider  which  proposals  would  be 
required to amend legislative acts in the financial services area9. 

2. 

SANCTIONING REGIMES IN THE FINANCIAL SECTOR 

2.1. 

Key notions  

This Communication refers to sanctioning regimes as the legal framework covering sanctions 
provided for in national legislation for the violations of EU financial services rules (including 
the  national  rules  transposing  EU  directives)  by  financial  institutions  and  other  market 
participants, and actual enforcement of sanctions. 

Sanctions are an important part of any regulatory system. They provide a deterrent and act as 
a  catalyst  to  ensure  that  EU  legislation  is  complied  with.  In  the  financial  sector,  efficient 
sanctioning  regimes  are  a  key  element  of  a  supervisory  regime  which  should  ensure  sound 
and  stable  financial  markets  and  ultimately,  the  protection  of  consumers  and  investors.  The 
scope  of  this  Communication  is  limited  to  sanctions  imposed  and  applied  by  the  competent 
authorities  of  Member  States  including  courts  in  the  field  of  financial  services.  Further 
incentives  to  ensure  compliance  with  EU  legislation  can  be  provided  by  ensuring  that 
consumers  have  the  means  to  obtain  redress  from  the  authors  of  a  violation  wherever  they 
have suffered harm. The Commission will launch a public consultation on collective redress10, 
where it will also take into account issues related to consumer redress in the financial services 
sector. 

In order to ensure full application of EU law, sanctions must be effective, proportionate, and 
dissuasive.  Sanctions  can  be  considered  effective  when  they  are  capable  of  ensuring 
compliance  with  EU  law,  proportionate  when  they  adequately  reflect  the  gravity  of  the 
violation and do not go beyond what is necessary for the objectives pursued, and dissuasive 
when they are sufficiently serious to deter the authors of violations from repeating the same 
offence, and other potential offenders from committing such violations.  

Whether  sanctions  meet  these  requirements,  depends  on  a  number  of  factors,  such  as  the 
nature and level of the sanctions provided for by law, the institutional and procedural settings 
governing their application, the effective detection of infringements and the actual application 

substantive amount of rules being developed by the responsible US regulatory agencies in order to give 
effect  to  the  high-level  provisions  of  the  Act.  The  reform  envisages,  for  instance,  the  creation  of 
financial  incentives  for  whistleblowers  to  report  to  the  SEC  violations  of  securities  laws,  the 
strengthening of the SEC’s authority to pursue actions for aiding and abetting any person who violated 
the federal securities laws, and a lower standard of proof on this. 
A review of the supervisory powers available to national banking supervisors is carried out for example 
in the ongoing work on crisis management. 
See Commission work program 2011, par. 2.6 - COM(2010) 623. 

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of the sanctions provided for by law. These factors are part of sanctioning regimes as referred 
to in this Communication. 

EU financial services rules often refer to both "administrative sanctions" and "administrative 
measures".  The  distinction  between  measures  and  sanctions  is  not  clear-cut:  some 
administrative actions – such as the withdrawal of authorisation may be considered to be an 
administrative sanction in some Member States and an administrative measure in others. This 
communication refers to "sanctions" as a broad notion covering the whole spectrum of actions 
applied  after  a  violation  is  committed,  and  intended  to  prevent  the  offender  as  well  as  the 
general public from committing further infringements. 

2.2. 

EU legal framework  

Under the existing legal framework, Member states enjoy considerable autonomy in terms of 
choice  and  application  of  national  sanctions.  However,  this  autonomy  should  be  balanced 
with  the  need  for  effective  and  consistent  application  of  European  law.  In  particular,  the 
European  directives  and  regulations  currently  in  place  in  the  area  of  financial  services 
essentially contain four groups of provisions on sanctions: 

–  The  first  group  concerns  the  coordination  of  the  power  to  impose  sanctions  between 
several  Member  States  which  may  be  affected  by  an  infringement  –  a  key  issue  in  the 
context of the "passport" and the exercise of freedom to provide services and freedom of 
establishment in the internal market11. 

–  A second group sets out an obligation for Member States to provide for the application of 
appropriate  administrative  sanctions  and  measures  where  EU  rules  are  infringed,  and  to 
ensure  that  they  are  effective,  proportionate,  and  dissuasive12.  Most  existing  Directives 
provide  for  a  list  of  powers  to  be  made  available  to  national  authorities,  but  without 
differentiating  between  investigative,  preventive  and  repressive  measures  and  without 
specifying in which cases those powers should be used13.  

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Market Abuse Directive, Article 16. Solvency II, Article 250(1)(b); CRD, Article 132(1)(d). Solvency 
II,  Articles  155(3),  158(2);  CRD,  Article  30(3);  MiFID,  Article  62(2);  UCITS,  Articles  21(5)  and 
108(5);  Prospectus  Directive,  Article  23.  MiFID,  Articles  32(7)  and  62(2);  UCITS,  Article  108(1)), 
(UCITS, Article 109(2); MiFID, Article 62(2.) 
Article 51(1) of MiFID Directive stipulates, for example, that: "Without prejudice to the procedures for 
the withdrawal of authorisation or to the right of Member States to impose criminal sanctions, Member 
States shall ensure, in conformity with their national law, that the appropriate administrative measures 
can  be  taken  or  administrative  sanctions  be  imposed  against  the  persons  responsible  where  the 
provisions adopted in the implementation of this Directive have not been complied with. Member States 
shall ensure that these measures are effective, proportionate and dissuasive". See also Article 25 of the 
Prospectus Directive 2003/71/EC, Article 14 of the Market Abuse Directive 2003/6/EC (interpreted by 
the  Court  in  the  case  C-45/08,  Spector  Photo  Group  and  Van  Raemdonck/CBFA,  judgment  of 
23.12.2009,  para  65-77),  and  Article  28  of  Directive  2004/109/EC  on  transparency  requirements, 
Article  99(1)  of  UCITS  Directive  2009/65/EC,  Article  54  of  Directive  2006/48/EC  on  credit 
institutions,  or  Article  34  of  Solvency  II  Directive  2009/138/EC  -,  Article  39(2)  of  the  Directive  on 
money laundering, providing also for sanctions against natural persons. Recital 38 of the Market Abuse 
Directive specifies that "sanctions should be sufficiently dissuasive and proportionate to the gravity of 
the infringement and to the gains realised". 
See MiFID Article 50, CRD Article 136, UCITS Article 98, Solvency II Article 34, Prospectus Article 
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–  A third group concerns sanctions for specific infringements14. Certain acts indicate one or 
more  particular  sanctions,  such  as  the  withdrawal  of  authorisation,  that  competent 
authorities  may  impose  under  certain  specific  circumstances15,  and  in  some  cases  also  in 
which  circumstances  competent  authorities  are  under  an  obligation  to  impose  that 
sanction16.  

–  A fourth group makes provision for the authorities to publish the measures and sanctions 

under certain circumstances17. 

The  existing  EU  legislation  is  restricted  to  administrative  sanctions  and  measures.  Member 
States may choose to apply criminal sanctions.  

3. 

SHORTCOMINGS OF EXISTING SANCTIONING REGIMES  

The  review  of  sanctioning  regimes  carried  out  by  the  Commission  in  cooperation  with  the 
Committees of Supervisors shows divergences across Member States. Such divergences may 
stem from many factors including differences in the national legal systems of Member States, 
constitutional requirements, the functioning of national administrations and the role of courts 
(administrative or criminal). 

The way sanctions are designed in some Member States raises the question whether sanctions 
are fully effective, proportionate and dissuasive. Furthermore, divergences exist as to the level 
of enforcement. In some Member States no sanctions were applied for more than two years. 
The  Commission  considers  that  this  could  be  symptomatic  of  a  weak  enforcement  of  EU 
rules.  

3.1. 

Divergences and weaknesses in national sanctioning regimes  

While  their  nature  and  degree  differs  to  some  extent  across  sectors  and  EU  legislative  acts, 
certain divergences and weaknesses have been identified on the following issues18. 

Some competent authorities do not have at their disposal important types of sanctioning 
powers for certain violations 

The  types  of  sanctions  vary  widely  across  Member  States,  including  for  the  same  type  of 
infringement. In general, competent authorities will only be able to impose a sanction that is 
optimal  in  terms  of  effectiveness,  proportionality  and  dissuasiveness,  if  they  have  a  wide 
range of different sanctioning powers.  

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See Articles 62, 258(2) of Directive 2009/138/EC - Solvency II; Article 99(2) UCITS; Article 8(1)-(3) 
of Directive 2002/92/EC on insurance mediation. 
This concerns mainly the withdrawal of an authorisation, see e.g. Directive 2009/138/EC (Solvency II), 
Article 144(1); Directive 2006/48/EC (CRD), Article 17.  
See e.g. Directive 2009/138/EC (Solvency II), Article 131 and 144(2).  
For example Article 51(3) of Directive 2004/39/EC - MiFID, Article 25(2) of the Prospectus Directive 
2003/71/EC,  Article  28(2)  of  Directive  2004/109/EC  on  transparency  requirements,  Article  14(4)  of 
Market Abuse Directive 2003/6/EC, Article 99(3) of Directive 2009/65/EC – UCITS. 
The examples provided in this section do not mention the Member States concerned, as their purpose is 
only to better illustrate the general problems identified. More information can be found in the reports of 
the Committees of Supervisors on which this Communication is based. 

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National  legislations  do  not  always  provide  for  certain  sanctioning  powers,  such  as 
withdrawal  of  licenses  and  disqualification/dismissal  of  managers,  which  seem  to  be 
particularly appropriate to ensure deterrence in the financial sector.  

For example, in 6 Member States there is no possibility to withdraw the authorisation in case 
of  violations  of  the  Market  Abuse  Directive.  15  Member  States  do  not  provide  for  the 
disqualification/dismissal  of  the  management  and/or  supervisory  body  in  cases  involving 
market manipulation under this Directive. Those powers may be useful to effectively sanction 
violations, and therefore prevent market abuse. 

Public warnings and publication of sanctions are not foreseen in all national legislations even 
though  they  may  make  a  significant  contribution  to  general  prevention,  since  they  act  as 
reminders  of  the  sanctions  applicable  to  certain  types  of  behaviour  and  show  that  there  is  a 
real  danger  that  such  behaviour  will  be  discovered  and  punished  by  the  authorities.  For 
example, under the MiFID, 5 Member States do not provide for public reprimands/warnings 
and 7 Member States do not provide for the publication of sanctions. In the insurance sector, 
only 14 supervisory authorities consistently publish sanctions. 

The  levels  of  administrative  pecuniary  sanctions  (fines)  vary  widely  across  Member 
States and are too low in some Member States 

Important  divergences  exist  as  to  the  minimum  and  maximum  level  of  pecuniary  sanctions 
provided  for  in  national  legislations  and  sometimes  the  maximum  level  is  so  low  that  the 
sanctions are unlikely to be sufficiently dissuasive.  

For example, in  the banking sector  the maximum  amount  of  fines  provided  for  in  case  of  a 
violation is unlimited or variable in 6 Member States, more than 1 million euros in 9 Member 
States, less than 150 000 euros in 7 Member States.  

In  the  securities  sector  among  the  18  Member  States  providing  for  administrative  fines  for 
violations of the prohibition of insider dealing, 4 Member States provide for maximum fines 
of 200 000 euros or less, while only 12 Member States provide for fines of 1 million euros or 
higher.  In  the  case  of  violations  of  the  minimum  conditions  for  authorisation  of  investment 
firms, 17 Member States provide for maximum fines of less than 1 million and in 6 of them 
the maximum amount is 100 000 euros or less. In the insurance sector, fines are unlimited or 
can  reach  1  million  euros  or  more  in  10  Member  States,  they  are  between  100 000  and  1 
million euros in 7 Member States, and less than 100 000 euros in 6 Member States. 

Violations of financial services legislation can lead to gains of several million euros, in excess 
of the maximum levels of fines provided for in some Member States19. A fine that is lower 
than the gains that can be expected from the violation is unlikely to have much of a deterrent 
effect.  Moreover,  a  potential  offender  may  always  hope  that  the  infringement  will  remain 
undetected  by  the  authorities.  To  ensure  that  a  fine  has  a  sufficiently  deterrent  effect  on  a 
rational market operator, the possibility that an infringement will remain undetected must be 
offset  by  imposing  fines  which  are  significantly  higher  than  the  potential  benefit  deriving 
from  a  breach  of  the  financial  services  legislation.  In  the  financial  sector,  where  a  large 
number  of  potential  offenders  are  cross-border  financial  institutions  with  very  considerable 
turnovers, sanctions of a few thousand euros cannot be considered sufficiently dissuasive.  

19 

See for example FSA press release No FSA/PN/098/2003 of 25/09/2003. 

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Some competent authorities cannot address administrative sanctions to both natural and 
legal persons 

In certain Member States, sanctions are imposed solely on natural persons or solely on legal 
persons:  they  will  therefore  be  treated  in  different  ways  as  regards  a  specific  offence, 
depending on the Member State where the offence is committed.  

For instance, some Member States do not provide for the application of sanctions to natural 
persons in the insurance sector.  

In this situation, a natural person (e.g. the manager of a bank) who is essentially responsible 
for  an  infringement  might  not  be  discouraged  from  committing  infringements  if  he  runs  no 
risk of being sanctioned for his illicit conduct because sanctions are applied to legal persons 
(e.g. the bank) only. On the other hand, when an individual has committed a violation to the 
benefit of a financial institution, sanctions applicable to the individual only might not have a 
sufficient deterrent effect on the financial institution. In addition, when an infringement is the 
responsibility of a legal person (e.g. a financial institution as a whole), sanctioning the natural 
persons  (e.g.  the  employees  involved  in  the  infringement)  only  might  be  insufficient  to 
encourage such financial institution to take the organisational measures and provide the staff 
training necessary to prevent infringements. 

Competent  authorities  do  not  take  into  account  the  same  criteria  in  the  application  of 
sanctions 

In  most  sectors,  divergences  exist  on  the  factors  to  be  taken  into  account  by  competent 
authorities when deciding the type of administrative sanction and/or calculating the amount of 
the administrative pecuniary sanctions to be applied in a specific case. Certain factors, such as 
the benefit resulting from the violation (if calculable) as well as the financial strength and the 
possible cooperative behaviour of the author of a violation, are not always taken into account, 
while  they  would  help  ensuring  effectiveness,  proportionality  and  dissuasiveness  of  the 
sanctions actually applied. 

For example, for the violation of insider dealing under the Market Abuse Directive, only 12 
Member  States  provide  for  sanctions  corresponding  at  least  to  the  benefit  derived  from  the 
violation. However, a fine that is not considerably higher than the benefit that may be gained 
from a violation will have only a limited dissuasive effect.  

In  the  banking  sector,  only  17  Member  States  take  into  account  the  financial  strength  of  a 
financial institution when determining the level of a fine imposed on it. Only 5 Member States 
take  into  account  that  factor  in  the  application  of  fines  for  violations  of  the  UCITS 
Directive20. However, any penalty imposed needs to have an equivalent effect on all financial 
services  undertakings:  a  fine  of  a  small  level,  while  being  clearly  dissuasive  for  certain 
smaller financial institutions, will have only a very limited dissuasive effect for large financial 
institutions.  

Finally,  the  level  of  co-operation  of  the  offender  is  not  taken  into  account  in  all  Member 
States,  while  this  would  encourage  offenders  to  cooperate  with  the  competent  authorities, 

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Sources: information provided by CESR members on sanctions envisaged in national rules transposing 
the UCITS Directive. 

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which  is  important  to  increase  their  investigatory  capacity.  For  example,  in  the  insurance 
sector, the cooperation with the authorities is taken into account in 18 Member States only. 

Divergence exists in the nature (administrative or criminal) of sanctions provided for in 
national legislation 

The  range  of  violations  for  which  administrative  or  criminal  sanctions  are  envisaged  in 
national legislation diverges across the EU.  

For  example,  while  all  Member  States  provide  for  administrative  sanctions  in  the  case  of 
violations of the MiFID Directive, only 13 Member States also provide for criminal sanctions.  

Subject to a detailed case-by-case analysis, criminal sanctions applicable to the most serious 
violation of EU financial services rules send out a strong message of disapproval to individual 
offenders  and  could  therefore  have  an  important  dissuasive  effect,  if  they  are  appropriately 
applied by the criminal justice system.  

The level of application of sanctions varies across Member States  

In addition to the provision for appropriate sanctions in national legislation, it is key for the 
effectiveness  of  sanctioning  regimes  to  ensure  that  sanctions  are  actually  applied  when  a 
violation is found or proven to have occurred.  

Although there is no simple indicator that would be able to measure and compare the level of 
application of sanctions in different Member States, some evidence can be derived from input 
factors,  such  as  the  resources  dedicated  by  a  country  to  application  of  sanctions,  or  output 
factors  such  as  the  number  and  level  of  sanctions  applied.  For  example,  the  number  of 
sanctions  applied  in  different  Member  States  in  2007  ranges  from  0  to  more  than  100,  and 
divergences  also  exist  in  Member  States  having  financial  banking  sectors  of  similar  size. 
Some Member States have not applied any sanction for more than two years21.  

This could be explained by a number of factors including the absence of infringements, but it 
appears very likely that violations this could be due, in part to violations not being detected. 
This  appears  even  more  likely  when  considering  that  some  of  these  Member  States  have  a 
financial sector of a certain importance and that other Member States having financial markets 
of similar size applied several sanctions in the period of two years mentioned above. 

3.2. 

Consequences of divergent and weak sanctioning regimes 

The sanctions provided for by national law in the case of violations of EU financial services 
rules,  diverge  in  key  aspects  of  sanctioning  regimes.  Those  divergences  have  lead  to  a 
situation  in  which  sanctions  do  not  seem  always  optimal  in  terms  of  effectiveness, 
proportionality, and dissuasiveness.  

Indeed,  when  sanctions  applied  across  the  Union  are  not  sufficiently  strict  or  their  level  is 
particularly low even for the most serious infringements, there is a high risk that they will not 
have a sufficiently dissuasive effect, as the perceived reward from the illegal behaviour will 
far  outweigh  the  real  risk.  Moreover,  as  the  effectiveness  and  dissuasive  effect  of  sanctions 

21 

E.g.: in the banking sector, some Member States did not impose any sanction in 2006-2007-first quarter 
2008. 

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depend  at  least  partly  on  them  being  seen  to  be  applied  by  the  competent  authorities, 
providing  for  appropriate  sanctions  would  be  insufficient  if  violations  are  not  detected  and 
therefore sanctions are not applied.  

Lack  of  dissuasiveness  and  ineffective  application  of  sanctions  can  result  in  a  lack  of 
compliance with EU financial services rules (such as prudential rules, conduct of business 
obligations,  transparency  obligations,  etc.),  which  can  increase  the  risk  of  market 
manipulation and lack of transparency, and may lead financial institutions to take excessive 
risks in their activity.  

This  situation  risks  seriously  undermining  consumer  protection  and  market  integrity. 
Violations of the EU financial services rules may cause serious economic damages to a broad 
range of users of financial services and to financial market safety and integrity, which have in 
turn serious negative repercussions on the whole economy. 

Furthermore,  divergences  in  sanctioning  regimes  may  create  distortions  of  competition  in 
the  Internal  Market.  If  sanctions  applied  in  different  Member  States  for  similar 
infringements are considerably different, financial institutions could be tempted to engage in 
regulatory arbitrage when deciding on their place of establishment or the location of branches; 
in  order  to  benefit  from  the  least  stringent  sanctioning  regimes.  This  can  prevent  the 
development of a level playing field within the Internal Market. 

The shortcomings identified in national sanctioning regimes can also have a negative impact 
on financial supervision. A new European supervisory architecture has been set up to ensure 
effective  supervision  of  financial  firms,  which  requires  cooperation,  coordination  and  trust 
between  national  supervisors.  However,  a  supervisory  authority  could  be  unwilling  to 
delegate powers22 to an authority in another Member States in which the sanctioning regime is 
considerably weaker. If national supervisors are not equipped with equivalent and consistent 
powers, including sanctioning powers, there is a risk that the decisions agreed within a college 
will not be applied in a consistent way by the supervisors concerned.  

Finally,  this  situation  risks  undermining  confidence  in  the  financial  sector,  where 
stakeholders,  and  particularly  consumers  note  that  illegal  behaviour  is  not  met  with 
appropriate sanctions which are capable of discouraging further infringements.  

4. 

SUGGESTED POLICY ACTIONS  

In view of those shortcomings, the Commission holds the view that further convergence and 
reinforcement of sanctioning regimes is necessary to prevent risk of improper functioning of 
financial markets and will provide important benefits. The Commission considers that  these 
objectives  can  be  better  achieved  through  EU  action  rather  than  by  different  national 
initiatives, which would not be sufficient to achieve sufficient convergence.  

The  Commission  therefore  suggests  that  a  minimum  common  standard  could  be  set  at 
European level on the key issues of sanctioning regimes in the financial services sector where 
shortcomings have been identified.  

22 

A  competent  authority  may  delegate  tasks  and  responsibilities  to  other  competent  authorities  under 
certain conditions, to ensure effective cross-border supervision. 

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4.1.  Minimum approximation of national sanctioning regimes  

The  Commission  considers  that  an  EU  legislative  initiative  to  promote  convergence  and 
reinforcement  of  national  sanctioning  regimes  in  the  financial  services  sector  could  be 
necessary.  These  objectives  cannot  be  sufficiently  achieved  by  the  Member  States  alone:  in 
the absence of a common EU framework, national initiatives cannot ensure consistency in the 
reinforcement  of  sanctioning  regimes.  EU  action  seems  therefore  necessary  to  achieve 
sufficient convergence. 

The Commission holds the view that a legislative initiative is warranted to set some minimum 
common  standards  that  Member  States  should  respect  in  designing  administrative  sanctions 
for  violations  of  financial  services  rules  and  when  applying  sanctions  in  this  field.  Such 
standards  would  be  developed  in  the  framework  of  basic  principles  common  to  all  specific 
sectors,  which  would  guarantee  the  overall  coherence  of  any  EU  action  in  this  field,  but  be 
adapted to the specifics of the different sectors and EU legislative acts in the financial services 
area. 

Moreover, the  introduction  of  criminal  sanctions for the most serious violations  of financial 
services legislation could be envisaged if and where this would prove essential to ensure the 
effective implementation of such legislation.  

The  envisaged  legislative  approach  would  be  sector-specific  and  strictly  limited  to  certain 
elements  of  the  sanctioning  regime23.  Some  key  elements  are  identified  in  the  following 
section. 

4.2. 

Key Issues for the approximation 

Depending on the specificities of each sector and legislative act in the financial services field, 
the Commission believes that approximation should address at least the following issues.  

•  Appropriate types of administrative sanctions for the violation of key provisions  

In  the  Commission's  view,  for  violations  of  each  key  provision  of  an  EU  legislative  act, 
compliance with which is essential for the practical effectiveness of the act and therefore for 
the  well-functioning  of  financial  markets,  a  core  set  of  administrative  sanctions  should  be 
provided  in  all  Member  States.  Such  sanctions  should  be  of  a  nature  so  as  to  allow  the 
competent authorities to impose, in each specific case, a sanction that is likely to be optimal in 
terms of effectiveness, proportionality, and dissuasiveness.  

23 

The legal bases for EU action in this field would be the Treaty's internal market provisions concerning 
the  approximation  of  laws  (Article  114  TFEU),  the  coordination  of  rules  on  taking  up  and  pursuing 
activities  as  self-employed  persons  and  freedom  to  provide  services  (Articles  53(1)  and  62  TFEU). 
They  provide  the  EU  legislature  with  the  possibility  of  adopting  measures  for  the  approximation  of 
national laws, with the purpose to improve the conditions for the establishment and functioning of the 
internal  market.  This  may  include  legislative  measures  relating  to  sanctions  if  they  are  necessary  in 
order to ensure that EU rules are fully effective. The introduction of such measures in the EU financial 
services legislation would be based on the same legal basis as the sectoral legislative acts concerned. 
Article  83  TFEU  also  provides  a  legal  basis  for  the  establishment  of  minimum  rules  concerning  the 
definition of criminal offences and sanctions, when the approximation of criminal laws proves essential 
to  ensure  the  effective  implementation  of  a  Union  policy  in  an  area  which  has  been  subject  to 
harmonisation measures. 

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For example, cease and desist orders and court or administrative injunctions may be useful if 
there  is  a  risk  of  certain  types  of  violation  being  continued  or  repeated.  In  addition  to  that, 
imposing  an  appropriate  fine  may  have  a  considerable  deterrent  effect  because  it  imposes  a 
cost on the author of the breach. Withdrawal of authorisations may be appropriate in case of 
recurrent violation of key provisions of the EU legislative acts. Replacement of the managers 
of a financial institution is a sanction to be applied in the case of serious wrongdoings in the 
management.  

Moreover,  public  warning  and  the  publication  of  sanctions  may  make  a  significant 
contribution to general prevention of violations. Sanctioning regimes will better prevent other 
potential offenders from future violations, if those are aware that the sanctions provided for by 
law are actively applied and enforced and there is a real risk that violations will be detected 
and sanctioned by the authorities.  

The  Commission  suggests  that  coherent  provisions  are  introduced  in  each  legislative  act, 
indicating for  each of the  key  provisions one or  more types  of administrative sanctions that 
must be available to  the  competent  authorities in all Member States in case of violations of 
that provision. National legislation would have to ensure that those types of sanctions can be 
imposed  against  the  persons  responsible  for  such  a  violation.  The  Commission  will  also 
consider  possible  measures  to  ensure  an  appropriate  interplay  between  such  administrative 
sanctions and any criminal sanctions imposed by Member States. 

•  Publication of sanctions 

The  Commission  believes  that  competent  authorities  should  be  required  to  disclose  to  the 
public  sanctions  imposed  as  a  rule.  The  Commission  therefore  is  considering  whether  a 
general obligation in this sense should be introduced and the exceptions from that obligation 
further limited, for example by providing that where disclosure would seriously jeopardise the 
financial  markets,  the  competent  authority  would  be  required  to  publish  the  sanction  in  an 
anonymous way.  

•  A sufficiently high level of administrative fines  

In  view  of  the  large  gains  that  could  be  obtained  from  violations  of  financial  services 
legislation, the level of any fines provided for by national law should be sufficiently high to 
allow national authorities to impose effective, proportionate, and dissuasive fines. In order to 
dissuade  a  rational  market  operator  from  breaching  the  law,  the  possibility  that  a  violation 
would  remain  undetected  should  be  offset  by  a  fine  that  could  reasonably  be  considered  to 
exceed the potential financial benefits that could be gained from a violation, even where those 
benefits are not capable of calculation. This would be on the assumption that a rational market 
operator would take into account the likelihood of detection in deciding whether to commit an 
offence, and that not all infringements would be actually detected. 

Moreover, given that, depending on the circumstances of each specific case, the actual level 
of sanctions imposed is often much lower than the maximum foreseen by the legislation, and 
the permitted range of sanctions is not always fully exercised, it is all the more important for 
the  thresholds  to  be  sufficiently  high  so  as  to  ensure  deterrence  from  all  types  of 
infringements. 

The Commission therefore will assess whether there is a need to establish, for each category 
of  administrative  fines,  minimum  levels  which  Member  States  would  need  to  respect  when 

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laying  down  the  range  of  the  fines  foreseen  in  national  legislations.  This  level  could  be 
determined  by  taking  into  account  the  types  of  violations  and  the  benefits  that  could  be 
expected to be gained from a violation, for it to significantly exceed such potential benefits. 

•  Sanctions provided for both individuals and financial institutions 

Sanctions  should  be  imposed  on  the  individuals  responsible  for  a  violation  and/or  on  the 
financial  institution  to  the  benefit  of  which  those  individuals  are  acting  when  committing  a 
breach. Sanctioning the individuals responsible for a violation may be more appropriate where 
a violation is exclusively their responsibility. On the other hand, where that individual is part 
of a financial institution, fining the financial institution is frequently appropriate if the person 
responsible  acted  to  the  benefit  of  a  financial  institution.  It  could  also  encourage  financial 
institutions  to  take  the  organisational  measures  and  provide  the  staff  training  necessary  to 
prevent violations.  

The  Commission  considers  that  subject  to  the  specificities  of  each  legislative  act 
administrative  sanctions  should  be  available  against  the  individuals  responsible  and  the 
financial institutions to the benefit of which the individual acted. 

is  considering 

The  Commission 
that 
administrative  sanctions  should  be  applicable  to  all  the  persons  responsible  for  an 
infringement24.  This  should  include  the  individual  responsible  for  a  violation  and/or,  where 
that individual is part of a financial institution, the financial institution to the benefit of which 
he acted when carrying out the violation. 

introducing  appropriate  provisions  specifying 

•  Appropriate criteria to be taken into account when applying sanctions  

The effectiveness, proportionality and dissuasiveness of sanctions depend also on the factors, 
including  aggravating  or  mitigating  circumstances,  taken  into  account  by  the  competent 
authorities when deciding the sanctions to be applied to the author of a specific violation. This 
holds particularly true for determining the actual amount of fines, where national legislation 
usually provides for a range of minimum and maximum amounts.  

These factors should be framed in such a way as to allow competent authorities to adapt type 
and level of sanctions imposed to the nature and the impact of the violation as well as to the 
personal conditions of the offenders, which would help ensuring optimal proportionality and 
dissuasiveness of the sanctions actually imposed. 

In  the  Commission's  view,  in  addition  to  the  seriousness  of  the  violation  which  is  already 
foreseen in almost all national legislations, the factors to be taken into account should include 
at least: 

–  the  financial  benefits  for  the  author  of  the  infringement  derived  from  the  violation  (if 
calculable),  in  order  to  better  reflect  the  impact  of  the  violation  and  discourage  further 
violations.  

24 

Most Directives provides that sanctions can be imposed on the persons responsible for the infringement, 
but without  clarifying  whether  this  includes  natural  and  legal  persons. There  are  some  exceptions,  eg 
Solvency  II  Directive  2009/138/EC,  Article  34  ("The  supervisory  authorities  shall  have  the  power  to 
take  any  necessary  measures,  including  where  appropriate,  those  of  an  administrative  or  financial 
nature, with regard to insurance or reinsurance undertakings, and the members of their administrative, 
management or supervisory body").  

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–  the financial strength of the  author of the violation,  as  indicated  by  elements  such  as  the 
annual turnover of a financial institution or the annual income of a person responsible for 
the violation, which would help in ensuring that sanctions are sufficiently dissuasive even 
for large financial institutions. 

–  the cooperative behaviour of the author of the violation, which can contribute to encourage 
infringers to cooperate and in so doing increase the investigatory capacity of the authorities 
and therefore effectiveness of sanctions. 

–  the duration of the violation. 

The Commission therefore is considering proposals to introduce provisions requiring Member 
States to ensure that competent authorities, when determining the sanction to be imposed for a 
violation of financial services legislation, take into account, as a minimum, certain common 
key criteria. 

•  Possible introduction of criminal sanctions for the most serious violations 

Criminal  sanctions,  in  particular  imprisonment,  are  generally  considered  to  send  a  strong 
message of disapproval that could increase the dissuasiveness of sanctions, provided that they 
are appropriately applied by the criminal justice system. 

However,  criminal  sanctions  may  not  be  appropriate  for  all  types  of  violations  and  in  all 
cases.  Imprisonment  can  only  be  imposed  against  natural  persons,  whilst  in  some  Member 
States criminal fines can be imposed on legal persons. Not all types of violations occurring in 
the  financial  services  area  may  be  considered  sufficiently  serious  so  as  to  warrant  criminal 
sanctions.  

The existing EU financial services law is without prejudice to the right of Member States to 
impose criminal sanctions. In fact, several Member States have criminal sanctions in place for 
certain offences in the financial services sector, particularly in case of market abuse or insider 
dealing.  In  the  case  of  market  manipulation  prohibited  under  the  Market  Abuse  Directive, 
only 2 Member States do not provide for criminal sanctions. In other areas criminal sanctions 
are provided for in far fewer Member States. For example, violations of the initial conditions 
of  authorisation  of  an  investment  firm  under  the  MiFID  Directive  are  punishable  by 
imprisonment in only seven Member States.  

In the light of the above considerations and in line with the conclusions of the JHA Council of 
22 April  2010  on  economic  crisis  prevention  and  support  for  economic  activity  and  the 
Stockholm  Programme25,  the  Commission  will  assess  whether  and  in  which  areas  the 
introduction of criminal sanctions, and the establishment of minimum rules on the definition 
of criminal offences and sanctions may prove to be essential in order to ensure the effective 
implementation  of  EU  financial  services  legislation.  Any  proposals  in  the  field  of  criminal 
law should aim at ensuring appropriate coherence and consistency across different sectors, in 
particular  when  considering  the  type  and  level  of  criminal  sanctions  included  in  EU 
directives. 

•  Appropriate mechanisms supporting effective application of sanctions  

25 

See footnote 3. 

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In order to ensure an effective, proportionate and dissuasive sanctioning regime, it is essential 
that the sanctions provided for by the law are effectively applied, that violations are detected, 
that investigations and sanctioning procedures are carried out expediently and that appropriate 
sanctions are imposed where this is warranted. 

The application of sanctions for violations of EU financial services legislation is mainly the 
responsibility  of  national  authorities.  In  order  to  enable  competent  authorities  to  effectively 
enforce EU law, the legal and institutional framework should be as conducive as possible to 
the detection of violations and the imposition of appropriate sanctions.  

The  Commission  recalls  Member  States'  obligation  to  ensure,  without  prejudice  to  the 
independence of the judiciary, that competent authorities apply the sanctions provided for in 
national legislation in an effective way. That should include, inter alia, sufficient human and 
financial  resources  devoted  to  the  application  of  sanctions,  appropriate  training  and 
specialised knowledge of persons and institutions carrying out investigations and sanctioning 
procedures. The Commission considers that these issues could be better addressed at national 
level. 

Nevertheless,  the  Commission  believes  that  EU  can  take  action  to  improve  the  legal 
framework in which competent authorities operate, and particularly to ensure that all national 
authorities  have  the  necessary  key  powers  and  investigatory  tools,  they  cooperate  and 
coordinate their action appropriately. 

While the degree of convergence in relation to most key powers and investigatory tools on the 
basis  of  existing  legislation  is  already  relatively  high,  no  such  convergence  has  yet  been 
reached  concerning,  in  particular,  mechanisms  encouraging  persons  who  are  aware  of 
potential violations to report those violations within a financial institution or to the competent 
authorities, and at encouraging persons who are responsible of potential violations, to report 
those violations to the competent authorities.  

In the Commission's view, it could be useful to explore whether common provisions could be 
introduced on mechanisms that Member States should put in place to better detect violations 
of  EU  law,  particularly  those  aiming  at  protecting  persons  (e.g.  employees  of  financial 
institutions)  who  denounce  potential  violations 
committed  by  other  persons 
("whistleblowing")  or  at  providing  for  reduction  of  sanctions  applicable  to  the  persons  who 
confess  their  involvement  in  a  violation,  under  certain  strict  and  clearly  defined  conditions 
(leniency programmes)26. By allowing competent authorities to uncover violations that would 
have probably been remained undetected, or to gather additional evidence about a violation, 
such mechanisms can contribute to more effective application of EU law, to the benefit of all 
players in financial market.  

As  to  the  cooperation  between  competent  authorities,  the  existing  EU  legislation  already 
provides  an  obligation  on  Member  States  to  take  the  necessary  measures  to  ensure  that 
competent  authorities  cooperate  with  each  other  whenever  necessary  for  the  purpose  of 
detecting  violations  and  imposing  sanctions.  In  particular,  competent  authorities  shall 
exchange information and cooperate where a violation has effects in more than one Member 
State.  

26 

See programmes established by OFT and SEC to reward whistleblowers. 

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The  Commission  believes  that  the  new  ESAs  will  further  facilitate  the  existing  cooperation 
between  competent  authorities,  which  will  help  in  ensuring  more  consistent  application  of 
sanctions  and  more  efficient  supervisory  activities.  To  this  end,  the  ESAs  should  use  their 
powers to carry out peer reviews, and include sanctioning powers as a priority area for those 
reviews. They should also make full use of their powers to collect information on sanctions, in 
order  to  monitor  national  legislation  and  to  promote  exchange  of  information  and  best 
practices  between  Member  States.  Moreover,  the  ESAs  have  the  possibility  of  settling 
disagreements  between  national  authorities,  in  some  areas  that  require  cooperation, 
coordination or joint decision making by supervisory authorities from more than one Member 
State.  

Finally, the Commission will consider whether further convergence on other specific issues, 
such as the rules on the burden of proof, would be necessary to ensure sanctions provided for 
by law are effectively applied.  

5. 

CONCLUSION 

The financial crisis has shown that financial market rules are not always respected and applied 
as  they  should  be.  This  has  seriously  undermined  confidence  in  the  financial  sector.  While 
recognising  that  stricter  sanctioning  regimes  cannot  remedy  all  problems  related  to  the 
application of EU financial services rules, the Commission believes that greater convergence 
and  reinforcement  of  existing  national  regimes  can  significantly  help  to  prevent  risk  of 
improper functioning of financial markets and assist the development of a level playing field 
within the Internal Market.  

The  Commission  welcomes  comments  from  Member  States  and  other  stakeholders  on  the 
analysis  of  the  shortcomings  identified  and  the  policy  proposals  suggested  in  this 
Communication. Stakeholders are in particular invited to indicate whether there is any issue 
they  do  not  consider  appropriate  for  further  approximation  and  whether  there  are  areas  in 
which the Commission should consider additional actions. 

The Commission invites all interested parties to send their contributions to: markt-sanctions-
consultation@ec.europa.eu, by 19 February 2011. 

The responses received will be available in the Commission website unless confidentiality is 
specifically  requested,  and  the  Commission  will  publish  a  summary  of  the  results  of  the 
consultation.  

The  Commission  will  take  into  account  the  comments  received,  should  it  decide  to  make 
appropriate  proposals  on  how  to  reinforce  national  sanctioning  regimes  in  a  consistent 
manner.  Any  future  legislative  initiative  in  this  field  would  be  accompanied  by  an  impact 
assessment of the relevant sanctions related issues. 

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