COMMISSION STAFF WORKING PAPER IMPACT ASSESSMENT   Accompanying document to the   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    {COM(2010) 716 final} {SEC(2010) 1497 final}
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 
SEC(2010) 1496 final 

COMMISSION STAFF WORKING PAPER 

IMPACT ASSESSMENT 

Accompanying document to the 

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 

{COM(2010) 716 final} 
{SEC(2010) 1497 final} 

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   EN 

 
 
  
 
 
 
 
 
 
 
 
TABLE OF CONTENTS 

1. 

2. 

Introduction .................................................................................................................. 3 

Procedural Issues and Consultation of Interested Parties ............................................ 4 

2.1. 

Consultation of interested parties and procedural issues ............................................. 4 

3. 

Policy context, Problem definition and Subsidiarity.................................................... 5 

3.1. 

Background and context............................................................................................... 5 

3.1.1.  Nature and size of the market concerned ..................................................................... 5 

3.1.2.  Number of infringements/ order of magnitude of sanctions ........................................ 6 

3.1.3.  Overview of legislative framework............................................................................ 10 

3.2. 

Problem definition...................................................................................................... 11 

3.2.1.  Affected stakeholders................................................................................................. 17 

3.2.2.  Baseline scenario........................................................................................................ 17 

3.3. 

The EU's right to act and justification........................................................................ 20 

3.3.1.  Subsidiarity principle ................................................................................................. 21 

3.3.2.  Proportionality............................................................................................................ 22 

3.3.3.  Fundamental Rights ................................................................................................... 22 

4. 

5. 

Objectives................................................................................................................... 23 

Policy Options, impact analysis and comparison....................................................... 24 

5.1. 

Policy options relating to the content of the measures............................................... 24 

5.1.1.  Preferred policy options ............................................................................................. 37 

5.1.2.  Cumulative impacts of the preferred options ............................................................. 37 

5.1.3. 

Impact on EU budget: ................................................................................................ 38 

5.2. 

Options relating to the nature of the measures........................................................... 39 

5.2.1.  Preferred policy instruments ...................................................................................... 41 

6. 

Monitoring and Evaluation ........................................................................................ 41 

ANNEX 1................................................................................................................................. 42 

ANNEX II ................................................................................................................................ 43 

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1. 

INTRODUCTION 

The financial crisis has unveiled a number of regulatory and supervisory failures which should 
be  tackled  in  order  to  repair  and  strengthen  the  financial  sector.  Effective  sanctions  and 
sanctioning powers  are  a  key  element  of a supervisory regime which should ensure sound  and 
stable financial markets and, ultimately, the protection of consumers and investors. As such they 
have attracted significant political attention over the last years. 

The  Ecofin  Council  of  4  December  2007,  when  reviewing  the  functioning  of  the  Lamfalussy 
process, invited the Commission to "study the differences in supervisory powers and objectives 
between national supervisors, to conduct a cross-sectoral stock-taking exercise of the coherence, 
equivalence  and  actual  use  of  sanctioning  powers  among  Member  States  and  the  variance  of 
sanctioning regimes and where necessary to define an adequate set of powers". 

The  Larosière  report  on  supervision  recognized  the  important  role  of  sanctioning  regimes: 
"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 sanctions regimes that are 
sufficiently convergent, strict, resulting in deterrence. This is far from being the case now." The 
corresponding  measure  proposed  is:  "in  the  first  stage,  EU  should  also  develop  a  more 
harmonised  set  of  financial  regulations,  supervisory  powers  and  sanctioning  regimes" 
(Recommendation 20). The recommendations of the Larosière report were broadly endorsed by 
the  Commission's  Communication  "Driving  European  recovery"  of  4  March  2009.  One  of  its 
five key objectives is indeed: "To ensure more effective sanctions against market wrongdoing". – 
To  this  end,  the  Commission  announced  its  intention  to  come  forward  with  proposals  on  how 
sanctions could be strengthened in a harmonised manner and better enforced. 

In  its  conclusions  of  19-20  March  2009,  the  European  Council  called  for  better  regulation  of 
financial  markets,  in  particular  as  regards  "rigorous  enforcement  of  financial  regulation  and 
transparency,  backed  by  effective,  proportionate  and  dissuasive  sanctions,  in  order  to  promote 
integrity in financial markets."  

In its Communication "Regulating Financial Services for sustainable growth" of 2 June 2010, the 
Commission  committed  itself  to  carry  out  a  revision  of  existing  sanctioning  powers  and  their 
practical  application  and  announced  a  Communication  on  sanctions  in  the  financial  services 
sector aiming at promoting convergence of sanctions across the range of supervisory activities. 

At the international level, strengthening sanctioning regimes is a priority 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.  Increasing  regulatory  enforcement  and  remedies  is  also  one  of  the 
objectives of the recent US financial regulation reform1. 

This impact assessment defines the problem and explains the need for and the objectives of EU 
level action in the field of sanctioning regimes. It also provides an analysis of the rationale, the 
alternatives  and  the  impact  of  the  Commission  proposals  on  how  sanctioning  regimes  may  be 
approximated  at  EU  level,  which  are  presented  in  the  Communication  on  sanctions  in  the 

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Dodd-Frank 
Protection 
Reform 
<http://financialservices.house.gov/singlepages.aspx?NewsID=3&RBID=775> (21 July  2010). 

Consumer 

Street 

Wall 

and 

3 

Act, 

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financial sector. It will be followed by a more comprehensive and detailed impact assessment for 
the envisaged proposals.  

KEY CONCEPTS:  

Sanctioning  regimes:  legal  framework  covering  sanctions  provided  for  in  national  legislation 
for  the  violations  of  EU  financial  services  rules  -  including:  type  (administrative  and  criminal, 
pecuniary and non-pecuniary) and level of sanctions, addressees of sanctions, factors to be taken 
into account in the application of sanctions - and actual enforcement of sanctions. 

Effectiveness, proportionality and dissuasiveness of sanctions: to be effective, sanctions must 
achieve  the  aim  of  the  legislative  act,  to  be  proportionate,  they  must  adequately  reflect  the 
gravity, nature and extent of the loss and/or harm and must not go beyond what is necessary for 
the objectives pursued; and to be dissuasive, sanctions must deter future infringements. 

2. 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 

2.1. 

Consultation of interested parties and procedural issues 

Following  the  above-mentioned  request  from  the  ECOFIN  Council,  in  2008,  the  European 
Commission  invited  the  European  Committees  of  Banking  Supervisors  (CEBS),  of  Securities 
Regulators  (CESR)  and  of  Insurance  and  Occupational  Pensions  Supervisors  (CEIOPS)  to 
provide assistance in conducting a review of supervisory powers and sanctioning regimes across 
Europe  in  the  financial  services  sector.  The  main  purpose  was  to  ascertain  whether  such 
sanctioning regimes are sufficiently equivalent / convergent in their effect.  

(banking, 

The  above  mentioned  Committees  of  Supervisors  carried out studies in each of the three main 
sectors  concerned 
to  as  "the 
CEBS/CEIOPS/CESR  reports"2).  Their  reports  provide  information  as  regards  administrative 
sanctions  (both  pecuniary  and  non-pecuniary)  and  criminal  sanctions  (in  the  securities  field). 
CEBS and CEIOPS reports also provide some information on the actual use of sanctions since 
2005. 

securities,  hereinafter 

insurance, 

referred 

The Commission services carried out a first internal analysis of the type of sanctions envisaged 
in national legislation, the maximum level of those  sanctions,  the  factors taken into account in 
determining the level of sanctions and finally, the effectiveness of their application. Those issues 
have also been discussed with Member States and the comments received have been taken into 
account  in  this  impact  assessment.  Overall,  they  agreed  on  the  need  to  promote  further 
convergence  of  national  sanctioning  regimes  while  underlying  the  need  to  be  respectful  of  the 
different national legal frameworks and judicial systems. A number  of  Member  States  stressed 
that the objective should not be to have full uniformity, but rather a minimum set of powers as 
well as an attempt to reduce divergences.  

An  Impact  Assessment  Steering  group  was  set  up  to  steer  the  preparation  of  this  Impact 
Assessment,  comprising  representatives  from  DGs:  MARKT,  ECFIN,  SG,  SJ,  ENTR,  EMPL, 
COMP,  SANCO,  JUST.  The  Steering  group  met  on  5  July,  on  19  July  and  on  17  September 

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on 

and 
Available 
<https://www.ceiops.eu/>  (20  September  2010).  Information  contained  in  these  reports  have  been 
subsequently updated on the basis of the contributions received from member States. 

<http://www.c-ebs.org/home.aspx>, 

<http://www.cesr-eu.org/>, 

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2010.This  impact  assessment  takes  into  account  the  comments  made  by  the  members  of  the 
group. 

This Report was sent to the Impact Assessment Board on 27 September. The Board discussed the 
report  in  its  hearing  on  22  October  2010.  The  Board  discussed  the  report  on  its  hearing  on  20 
October  2010.  The  following  changes  have  been  implemented  following  the  Board's  opinion: 
comparative  data  have  been  included  on  size  of  the  banking  markets  and  number  of  sanctions 
imposed; an additional option has been added for issue 1 and the scope of the action envisaged 
for  pecuniary  sanctions  has  been  broadened;  the  reasons  why  changes  in  national  legislations 
seem necessary have been better explained; the impact of the selected options on third countries 
and particularly US has been addressed 

3. 

POLICY CONTEXT, PROBLEM DEFINITION AND SUBSIDIARITY 

3.1. 

Background and context 

Completing the single market in financial services is recognised as one of the key areas for EU's 
future growth and jobs, essential for EU’s global competitiveness and thus a crucial part of the 
economic  reform  process:  the  more  integrated  financial  markets  are,  the  more  efficient  the 
allocation  of  economic  resources  and  long-run  economic  performance  will  be.  However,  only 
when  rules  are  enforced  effectively,  can  companies  and  citizens  benefit  from  access  to  safe 
European markets.  

3.1.1.  Nature and size of the market concerned  

The EU is one of the key players in global financial services: its contribution to world financial 
services  accounts  for  25%  to  50%  in  key  segments  of  financial  markets3  (Chart  1  in  Annex  II 
gives an overview of the size of European financial markets. 

The  wholesale  financial  sector,  which  is  concerned  by  many  of  the  sanctions  discussed  in  this 
Impact  Assessment,  is  of  decisive  importance  for  the  EU  economy  and  plays  a  key  role  in 
ensuring  that  the  entire  economy  can  make  the  investments  necessary  for  sustainable  growth. 
Indeed, the sector’s output was worth an estimated €219bn in 2008, while it employs almost 1.4 
million  people,  and  exports  of  wholesale  financial  services  by  EU  countries  account  for  a 
significant  proportion  of  world  trade  in  services  4  The  role  of  the  wholesale  financial  sector  is 
also  significant  in  terms  of  value  added  in  the  economy  and  of  employment.  For  instance, 
financial  intermediation  and  insurance  and  pension  funding,  which  respectively  accounted  for 
4,7%  and  1%  of  EU-25  total  value  added  (2007),  have  been  identified  as  some  of  the  most 
important sectors for the EU economy5.  The  European  financial  market  is  becoming  more  and 
more integrated, particularly in the wholesale financial sector, and there are a growing number of 
large  financial  groups  and  infrastructures  operating  on  a  pan-European  basis.  Although  the 
financial  crisis  led  to  increased  market  segmentation,  the  level  of  financial  integration  remains 
high.  

3 

4 

5 

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European 

Integration 

Financial 
See 
<http://ec.europa.eu/internal_market/finances/fim/index_en.htm> 
London  Economics,  report  "The  importance  of  wholesale  financial  services  to  the  EU  economy  2009", 
September 2009 
See  Commission  staff  working  document  "'Implementing  the  new  methodology  for  product  market  and 
sector  monitoring:  Results  of  a  first  sector  screening'  accompanying  the  Commission  Communication  of 
2007 "A single market for 21st century Europe", COM(007)274 final. 

2009), 

(EFIR 

report 

2009 

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The  banking  and  insurance  markets  are  dominated  by  pan-European  groups  active  in  several 
Member  States,  whose  risk  management  functions  are  centralised  in  the  group's  headquarters. 
Currently  around  70%  of  EU  banking  assets  is  in  the  hands  of  some  40  banking  groups  with 
substantial  cross-border  activities.  Especially  in  the  EU-12,  banking  markets  are  dominated  by 
foreign  (mostly  Western  European)  financial  groups  (see  Chart  2  in  Annex  II).  In  these 
countries,  on  average  65%  of  banking  assets  are  in  foreign-owned  banks.  In  countries  like 
Estonia,  the  Czech  Republic  and  Slovakia  over  92%  of  banking  assets  are  in  foreign-owned 
banks. 

3.1.2.  Number of infringements/ order of magnitude of sanctions  

It  is  by  definition  impossible  to  obtain  reliable  estimates  about  the  number  and  importance  of 
undetected  violations  of  the  law  in  any  area.  Nevertheless,  the  number  of  sanctions  actually 
imposed  by  Member  States  provides  an  indication  of  the  number  and  importance  of  detected 
violations of financial services legislation. Information provided in competent authorities' annual 
reports,  and  other  information  in  the  possession  of  the  Commission,  provide  some  data  on  the 
number of sanctioned violations in the reference periods for violations of banking legislation and 
of market abuse rules. The number of actual violations is likely to be much higher.  

Regarding  the  range  of  sanctions  available  on  the  statute  book,  Chart  3  and  4,  covering  most 
Member States gives a guide to the sanctions available for violations of MiFID and MAD. It can 
be immediately seen that there is a wide range, particularly as regards fines (administrative and 
criminal). 

Chart  3  –  Range  of  financial  sanctions  (administrative  and  criminal)  (legal  persons)  and  terms  of 
imprisonment for natural persons (MiFID). 

s
r
a
e
y
/
)
0
0
0
,
0
0
1
(

R
U
E

60

50

40

30

20

10

0

BE BG CZ DK DE EE IE EL ES FR IT CY  LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK

max criminal fines max administrative fines

imprisonment

Comments: administrative fines are unlimited in DK and UK; criminal fines are unlimited in FI and DK. However, in DK the level of fines is 
limited by case law currently at a level of DKK 5000 - 25000 (approximately € 670 – 3355). Maximum fines are: FR: EUR 1.5 milli on or ten 
times the unlawful gains. EL: EUR 3 million or twice the unlawful gains. In ES, maximum fine is up to the highest of the following amounts: 5x 
gross profit obtained as a result of the acts or omissions comprising the infringement; 5% of the infringing firm's own funds; 5% of the total funds 
involved in the infringement or EUR 600 000. No information for PL. 

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Source: CESR report, p. 182-184 and contributions from MS 

Chart 4 – Range of administrative and criminal fines and terms of imprisonment for insider dealing (Art. 2 
MAD). 

s
r
a
e
y

/
)
0
0
0

,

0
0
1
(

R
U
E

60

50

40

30

20

10

0

BE BG CZ DK DE EE IE EL ES FR IT CY  LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK

max criminal fines max administrative fines

imprisonment

Comments: UK and DK: unlimited criminal fines. However, in DK the level of fines is limited by case law currently at a level of DKK 5000 - 
25000 (approximately € 670 – 3355). In  nine other Member States, if the gains from an infringement are quantifiable and exceed the maximum 
amount of the relevant sanction, the set amount of the fine can be exceeded. (BE, DE, ES, FR, IT, LT, LU, NL, RO, UK). In ES, maximum fine is 
up to the highest of the following amounts: 5x gross profit obtained as a result of the acts or omissions comprising the infringement; 5% of the 
infringing firm's own funds; 5% of the total funds involved in the infringement or EUR 600 000. 

Source: CESR report, summary of February 2008, p. 15-17 and contributions from MS 

The information available to the Commission about sanctions actually imposed concerns mainly 
the banking sector, and (for certain Member States only) the securities sector. The difficulty of 
gathering this information is illustrative itself of the lack of transparency regarding sanctions. In 
the banking sector, some Member States imposed no sanctions whatever during that period, and 
others imposed less than 25 sanctions per year, including some Member States with very large 
financial markets. Chart 5 shows that the number of sanctions applied differs considerably even 
between Member States with banking sectors of a similar size, as approximately estimated on the 
basis of the value of the banks' assets.  

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Chart  5:  Number  of  sanctions  imposed  in  2007  and  value  of  banks'  assets  in  some  Member  States 

Sanctions and assets 2007

f
o
r
e
b
m
u
N

s
n
o
i
t
c
n
a
s

1600

1400

1200

1000

800

600

400

200

0

4000

3500

3000

2500

2000

1500

1000

500

0

7
0
0
2

s
t
e
s
s
a

f
o
e
u
l
a
V

Value o f
assets
(billio n
euro )

Number o f
sanctio ns
2007

AT

BE

DK

FR

DE

EL

IE

IT

LU

NL

PT

SE

ES

Member State

Source: CEBS report, page 55, BIS statistics and contributions from MS 

Chart6,  compiled  from  input  from  Member  States,  gives  an  overview  of  the  amount  of 
administrative  financial  sanctions  imposed  in  the  banking  sector  (compared  with  the  range  of 
sanctions, that is the minimum and maximum levels provided for in the legislation). From this 
table it can be seen that the majority of Member States, imposed little or no sanctions during that 
period. It also shows that in most cases where a wide range of sanctions are allowed in the statute 
book, including very high sanctions, that range of sanctions is not effectively imposed. Only in 
three  Member  States  was  a  significant  amount  of  sanctions,  totalling  over  one  million  euro, 
actually imposed in the banking sector during that period. 

Chart  6  –  Range  of  (financial)  administrative  sanctions  against  legal  persons,  and  sanctions  applied  from 
2005 to 2007 (in Euros) 

R
U
E

5500000

5000000

4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0

BE BG CZ DK DE EE IE EL ES FR IT CY  LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK

Range of financial sanctions

Sanctions applied 

Comments: Fines unlimited in DK and UK. Maximum fines are linked to equity capital (RO, ES), turnover (HU, LT), or an alternative maximum 
figure, as indicated in the table. FR:  max fines EUR 50  million. FI:  fines not applicable to credit institutions. IT – fines can be cumulatively 
applied to natural persons and can exceed that amount in case of repeated violations. 

Source: CEBS report, p. 50-52 and contributions  from national authorities. 

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Chart  7  gives  an  overview  of  the  maximum  fines  against  legal  persons  foreseen  in  national 
legislations in the insurance sector and the amounts of administrative financial sanctions actually 
imposed. It shows important differences in the maximum fines foreseen in national legislations. 
In eight member States no fine was imposed during the period 2005 to 2007. 

Chart  7  –  Range  of  (financial)  administrative  sanctions  against  legal  persons  (available  in  2005-2007),  and 
sanctions applied from 2005 to 2007 (in Euros)  

R
U
E

5500000

5000000

4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0

BE BG CZ DK DE EE IE

EL ES FR IT CY  LV LT

LU HU MT NL AT PL PT RO SI SK

FI SE UK

Max financial sanctions Max sanctions applied

Comments: DK, NL and UK – fines are unlimited. However, in DK the level of fines is limited by case law currently at a level of DKK 5000 - 
25000 (which approximately is € 670 – 3355). RO: the amounts of fi nes are linked to turnover or capital. PL: the amount of fines is linked to 
gross written premium, FR: maximum fines EUR 50 million. No fines available in FI. No information available for EL. 

Source: CEIOPS report, pg. 119-123 contributions from national authorities 

For the securities sector (specifically for market abuse), chart 8 shows the number of financial 
sanctions imposed annually in certain years, for those Member States for which the Commission 
has information. 

Chart 8: Number of financial sanctions imposed in some Member States6 

Member 
State 

Financial sanctions imposed – number (year) 

DE 

FR 

UK 

6 
7 

8  

16 (2008), 7 (2007), 20 (2006) – criminal financial sanctions imposed by the judicial authorities7 

48 (2008), 48 (2007), 31 (2006)8 

6 (2008), 1(2007),9 6(2006) – does not include criminal fines imposed 

Sources: Annual Reports 2006, 2007 and 2008, http://www.cbfa.be/fr/sanc/sanc.asp (29 July 2010). 
Source: Annual Report 2008, p. 158; Report 2007, p. 162. Also to be taken into account are cases in which 
proceedings  were  terminated  following  a  payment  –  17  in  2006,  14  in  2007  and  12  in  2008.  additional 
information by DE authorities. 
Source: Annual report 2008, p. 197; Annual report 2007, p. 197; Annual Report 2006, p. 227; additional 
information by FR authorities 

EN 

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IT 

ES 

NL 

BE 

LU 

AU 

CY 

PL 

6 (2008); 17 (2007) (no information for 2006) 10 

11 (2008), 14 (2007) – number of sanctions imposed "mainly concerning market abuse"11  

4 (2008), 2 (2007), 1 (2006) – financial sanctions 12 

1 (2008), 2 (2007), 1 (2006) 13 – does not include criminal fines imposed by the judicial authorities 

0 (2006), 0 (2007), 0 (2008) 14  

21 (2008)15 – does not include criminal fines imposed 

6(2008) 

8(2008), 11 (2007), 4 ( 2006) – only criminal sanctions imposed by the courts 

3.1.3.  Overview of legislative framework  

This  initiative  concerns  sanctioning  regimes  for  the  legislative  acts  adopted  by  Council  and 
Parliament  in  the  field  of  financial  services,  together  with  the  Commission  measures  based  on 
those acts, and in particular legislation addressed by the Level 3 Committees in their respective 
studies. The main Directives concerned are listed in Annex 1. 

Those acts put in place (in case of regulations) or oblige Member States to put in place (in the 
case  of  directives)  certain  rules  for  the  conduct  of  business  by  market  participants  or  for  the 
taking  up  and  conduct  of  certain  businesses  of  financial  institutions.  For  example,  those  acts 
require Member States to prohibit certain conducts (see e.g. the Market Abuse Directive), or to 
ensure  that  financial  activities  are  not  carried  out  without  appropriate  authorisation  and  that 
financial institutions authorised under a directive comply with certain requirements at all times 
(see  e.g.  the  Solvency  II  Directive).  In  each  of  those  cases,  the  question  of  appropriate 
sanctioning  arises  if  a  market  participant  or  financial  institution  does  not  comply  with  an  EU 
regulation  or  with  the  national  provisions  enacted  by  Member  States  to  transpose  an  EU 
directive.  

The existing legal framework leaves it for the national authorities to detect such violations and to 
apply appropriate sanctions16. At present, EU legislation deals with neither the type and level of 
sanctions  to  be  applied  nor  their  enforcement.  Therefore,  Member  States  enjoy  considerable 
autonomy  in  terms  of  choice  and  application  of  national  sanctions.  However,  this  autonomy 
should be balanced with the need for uniform application of European law. Where EU legislation 
does  not  specifically  provide  any  penalty  for  an  infringement  or  refers  for  that  purpose  to 
national  law,  regulations  and  administrative  provisions,  the  principle  of  sincere  cooperation 

9  
10  
11 
12  
13 
14 
15 
16 

Source: Annual report 2008/2009, p. 33; Annual Report 07/08 P. 23Press releases 
Source: Annual report 2008, p. 241 
Source: Annual Report 2008, p 210-211 
Source: Annual Report 2007, p. 38; Annual Report 2008, p. 40. 
Source:  http://www.cbfa.be/fr/sanc/sanc.asp (29 July 2010). 
Source: Annual Report 2008, p. 145; Annual Report 2007, p. 133; Annual Report 20006, p. 137. 
Source: Annual Report 2008, p. 118); additional information by AU authorities 
In  its  Proposal  on  amending  Regulation  (EC)  No  1060/2009  on  credit  rating  agencies  (COM(2010)  289 
final),  the  Commission  proposes  to  entrust  the  European Securities  and Markets Authority  (ESMA) with 
the power to take appropriare supervisory measures where a credit rating agency (CRA) has committed a 
breach of the Regulation, and to request the Commission to impose on a CRA a fine, in some particular 
cases.  

EN 

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requires  that  Member  States  "take  any  appropriate  measure  to  ensure  fulfilment  of  the 
obligations  arising  out  of  the  Treaty  or  resulting  from  the  acts  of  the  Institution  of  the  Union" 
(Article  4.3  TEU).  The  European  Court  of  Justice  has  gradually  specified  that  this  principle 
obliges  Member  States  to  ensure  the  application  of  "effective,  proportionate  and  dissuasive" 
sanctions  in  case  of  infringement  of  European  rules17.  For  that  purpose,  whilst  the  choice  of 
penalties  remains  within  Member  States'  discretion,  Member  States'  must  ensure  that 
infringements of EU law are penalised under conditions, both procedural and substantive, which 
are  analogous  to  those  applicable  to  infringements  of  national  law  of  a  similar  nature  and 
importance and which, in any event, make the penalty, effective, proportionate and dissuasive. 

As to the interpretation of this requirement, in general terms, in the light of the case law of the 
Court  of  Justice  of  the  European  Union,  sanctions  can  be  considered  effective  when  they  are 
capable  of  ensuring  compliance  and  consequently  effective  application  of  EU  law.  Sanctions 
would be proportionate when they do not go beyond what is necessary for the objectives pursued 
and  adequately  reflect  the  gravity  of  the  infringement18.  Finally,  sanctions  can  be  considered 
dissuasive when they prevent authors of potential violations from committing or from repeating 
those violations. Beyond these broad principles, which stem in any event from the case law, it is 
hardly  possible  to  formulate  generally  applicable  criteria  for  judging  the  requirements  of 
effectiveness,  proportionality  and  dissuasiveness.  This  has  to  be  assessed  in  the  light  of  the 
nature of different infringements and the specifics of the sectors concerned.  

In  order  to  ensure  that  Member  States  comply  with  their  obligations  in  the  area  of  financial 
services,  the  Directives  applicable  in  the  financial  sector  contain  standard  clauses  requiring 
Member  States  to  provide  that  appropriate  administrative  measures  can  be  taken  or 
administrative  sanctions  be  imposed  against  the  persons  responsible  where  the  provisions 
adopted in the implementation of the Directives have not been complied with. In addition, some 
Directives contain rules on: - cooperation between national authorities in charge of the detection 
of infringements and/or the application of sanctions; - powers to be conferred to the competent 
authorities; - administrative sanctions/measures applicable in some specific cases; - possibility to 
publish the sanctions/measures applied in specific cases. 

3.2. 

Problem definition 

In  spite  of  the  rules  described  in  the  previous  subsection,  sanctioning  regimes  provided  for  by 
Member States for violations of national laws transposing the legislative acts adopted by Council 
and  Parliament  in  the  field  of  financial  services  legislation,  are  divergent  and  fragmented.  The 
information provided in the CESR, CEIOPS and CEBS reports show a certain divergence across 
national sanctioning regimes which are designed in a way that does not always ensure sanctions 
are  sufficiently  effective,  proportionate  and  dissuasive.  Furthermore,  the  information  received 
shows  a  divergence  in  the  level  of  enforcement:  the  fact  that  in  some  Member  States  no 
sanctions  were  applied  in  a  given  period  could  be  symptomatic  of  a  weak  enforcement  of  EU 
rules.  

While the nature and degree of the problems identified differ to some extent across sectors and 
Directives, the main problem drivers behind this phenomenon may be summarised as follows.  

17 

18 

Judgment of 21 September 1989, Case C-68/88, Commission vs Greece; Judgement of 13 September 2005, 
Case  C-176/03,  Commission  vs  Council,  par  48;  Judgement  of  5  July  2007,  Case  430/05,  Ntionik  et 
Pikoulas, par 53.  
See ECJ judgement of 5 July 2007, Ntionik et Pikoulas, C-430/05, par 53; ECJ judgement of 6 July 2000, . 
Molkereigenossenschaft Wiedergeltingen, C-356/97, par. 35-36. 

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Problem drivers 

Divergences and weaknesses in sanctioning regimes 

The levels of administrative pecuniary sanctions (fines) vary widely across Member States and 
seem too small in some Member States, including for the same type of infringement.  

For  instance,  as  regards  the  level  of  administrative  pecuniary  sanctions,  the  maximum  levels 
provided for in national legislation diverge very widely: 

–  Banking  sector:19  the  maximum  amount  of  fines  provided  for  in  case  of  a  violation  is 
unlimited or variable in 5 Member States, more than 1 million euros in 9 Member States, less 
than 150.000 euros in 7 Member States.  

–  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 11 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, 15 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.  

–  Insurance sector:20 6 Member States provide for maximum fines of 100 000 euros or less21.  

The fines applied in certain Member States may appear to be rather small, for several reasons. 22 
First,  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 States.23 However, a fine 
that is lower than the gains that can be expected from the violation for which the fine is imposed 
is unlikely to have much of a dissuasive effect. Second a potential offender may always hope that 
the  infringement  will  remain  undetected  by  the  authorities.  To  ensure  that  a  fine  has  a 
sufficiently dissuasive effect on a rational market operator, the possibility that an infringement 
will remain undetected must be offset by imposing fines which are higher than the benefit that 
the  undertaking  gained  from  breaching  the  financial  services  legislation  in  question.  In  the 
financial  sector,  where  a  large  number  of  potential  offenders  are  cross-border  financial 

19 

20 

21 

22 

23 

and 

This  concerns  the  range  of  fines  available  for  violations  of  banking  legislation  in  general,  and  does  not 
relate to a specific violation. 
This concerns the range of fines available for violations of insurance legislation in general, and does not 
relate to a specific violation. 
See CEBS report, p. 50-52; CEIOPS report, p. 119-123; CESR report on MAD, excerpts from the replies of 
national authorities; CESR report on Mifid, p. 182. 
Research on the level of fines and its relation to the level of enforcement, as well as on the optimal level of 
fines includes the following: John C. Coffee, Law and the Market: The Impact of Enforcement, Columbia 
Law 
< 
http://finance.wharton.upenn.edu/weiss/wpapers/07-3.pdf>  (20  September  2010);  Uldis  Cerpsa  Greg 
Mathersb  and  Anete  Pajustec:  Securities  Laws  Enforcement  in  Transition  Economies,  p.  12  ssq.,  < 
http://www.cerge-ei.cz/pdf/gdn/R CV_100_paper_01.pdf> (20 September 2010); Rafael La Porta, florencio 
Lopez-de-Silvanes,  Andrei  Shleifer:  What  Works  in  Securities  Laws?,  the  Journal  of  Finance,  Vol.  LXI, 
No. 1, February 2006; with a specific focus on another area (antitrust) see Wouter Wils, Optimal Antitrust 
fines – theory and practice, World Competition 2006, p. 183, 199 ssq; Peik Granlund: Regulatory choices 
in  global  financial  markets  –  restoring  the  role  of  aggregate  utility  in  the  shaping  of  market  supervision, 
Bank  of  Finland  Research  Discussion  Papers  1,  2008,  p.  13  ssq;  CRA  International/City  of  London: 
Assessing the Effectiveness of Enforcement and Regulation, London, April 2009.. 
See for example FSA press release No FSA/PN/098/2003 of 25/09/2003. 

Economics  Working 

Paper 

2007, 

304, 

No. 

ssq 

13 

p. 

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12 

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institutions with very considerable turnovers, sanctions of a few thousand euro do not seem to be 
sufficiently dissuasive.  

Some  Member  States  do  not  have  at  their  disposal  important  types  of  sanctioning  powers  for 
certain infringements.  

–  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 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.  Furthermore,  public  warnings  and  publication  of 
sanctions are not foreseen in all national legislations.  

–  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. 
However,  the  publication  of  sanctions  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. 24 

Divergences also exist as to the type of persons who may be sanctioned. In some Member States 
sanctions  are  not  applicable  to  natural  persons  (e.g.  Insurance)  or  to  legal  persons  (e.g.  MAD 
pecuniary sanctions).  

–  For  example,  in  the  banking  sector,  in  one  Member  States  sanctions  are  limited  to  natural 

persons and in two other Member States to legal persons.25 

–  In the insurance sector, three competent authorities do not have the power to apply sanctions 
to  natural  persons,  five  authorities  are  able  to  apply  only  financial  sanctions  to  natural 
persons, and two authorities are able to apply only non-financial sanctions.26 

Therefore, legal persons and natural persons will most probably be treated in different ways as 
regards a specific violation, depending on the Member States where the violation is committed. 
Similarly, the integrity of financial markets will be protected to different degrees across Member 
States. However, competent authorities will be better able to choose a sanction that is optimal in 
terms  of  effectiveness,  proportionality  and  dissuasiveness  if  sanctions  are  applicable  to  natural 
and legal persons. 27 A natural person (e.g. the manager of a bank) who is essentially responsible 
for  an  infringement  would  probably  not  be  discouraged  from  committing  infringements  if  he 
doesn't risk to be sanctioned for his illicit conduct because sanctions are applied to legal persons 
(e.g.  the  bank)  only.  On  the  other  hand,  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  would  probably  not  encourage  such  financial 
institution to take the organisational measures and provide the staff training necessary to prevent 
infringements. 

24 
25 
26 
27 

See references quoted above (Footnote 22). 
Source: CEBS report, p. 58 and excerpts from replies of national authorities. 
Source: CEIOPS report, p. 108-110. 
See references quoted above (Footnote 22), in particular Granlund, p. 18. 

EN 

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The  criteria  taken  into  account  to  determine  the  level  of  the  fines  vary  substantially  (e.g. 
undertaking's own funds, profit derived from the offence, loss incurred by third parties etc.).  

–  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 
offence.28  Of  the  4  Member  States  with  the  lowest  maximum  administrative  pecuniary 
sanctions  (200  000  euros  or  less)  only  1  provides  for  sanctions  related  to  the  illegal  profit 
obtained.  A  fine  that  is  not  considerably  higher  than  the  benefit  that  may  be  gained  from  a 
violation could have a limited dissuasive effect. 29  

–  For  example,  in  the  banking  sector,  only  17  Member  States  take  into  account  the  financial 
strength30  of  a  financial  institution  when  determining  the  level  of  a  fine  imposed  on  it. 
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,  may  have  only  a  very  limited  dissuasive  effect  for  large  financial 
institutions.  

Moreover, divergences exist on the nature (administrative or criminal) of sanctions provided for 
in  national  legislations.  For  example,  while  all  Member  States  provide  for  administrative 
sanctions  in  case  of  violations  of  the  Mifid  Directive,  only  13  Member  States  provide  for 
criminal  sanctions,  including  criminal  fines  and/or  custodial  penalties.  Criminal  sanctions  send 
out  a  strong  message  of  disapproval  to  individual  offenders  and  could  therefore  have  an 
important dissuasive effect. 

Finally,  even  where  appropriate  sanctions  (both  pecuniary  and  non-pecuniary)  are  in  place,  a 
certain divergence exists in the level of application of sanctions in different Member States. 

The effectiveness, proportionality and dissuasiveness of sanctioning regimes depend not only on 
the sanctions provided for by law but also on their application. 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 occur.  

There is no clear indicator that would be able to measure and compare the level of application of 
sanctions  in  different  Member  States.  Research  therefore  derives  some  initial  evidence  on  the 
level  of  application  of  sanctions  in  different  country  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.31  In  this  regard,  the  data  available  concerning  the  number  and  level  of 
sanctions applied gives some evidence of a certain divergence:32  

–  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 banking and insurance sectors 
of similar size.  

28 
29 
30 

31 
32 

Source: CESR MAD Report, p. 31 and excerpts from replies of national authorities. 
See references quoted above (Footnote 22).. 
Source: CEBS report, p. 53 and excerpts from replies of national authorities. The financial strength of an 
undertaking  may  be  indicated  for  example  by  the  level  of  its  own  funds,  its  turnover,  or  its  total  assets; 
when an individual is responsible for the violation, his financial strength may be indicated by his annual 
income. Pls note that for the banking sector, the data available concerns does not relate to certain specific 
types of sanctions. 
See references quoted above (Footnote 22), in particular Coffee, p. 13 ssq; CRA International, p. 27-32.  
Source: CEBS report, p. 55; CEIOPS report, p. 26, 127; see also Chart in section 2.1.1 above. 

EN 

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–  Some Member States have not applied any sanction for more than two years.  

Numbers of applied sanctions can be low either because there have not been any violations, or 
because violations are not detected, or cannot be proven. While the total absence of violations in 
some Member States cannot be ruled out as a possibility, it appears more likely that violations 
are  not  detected,    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 same reference period. In an integrated financial market, economic and 
cultural differences alone cannot explain such divergences. 

As the effectiveness and dissuasive effect of sanctions depend at least partly on them being seen 
to  be  applied  by  the  competent  authorities,  providing  for  appropriate  types  and  levels  of 
sanctions  would  be  insufficient  if  violations  are  not  detected  and  therefore  sanctions  are  not 
applied.  Deficiencies  in  detection  of  violations  can  lead  to  the  same  problems  of  lack  of 
compliance with EU law, undermined protection of consumers and market integrity, and lack of 
confidence in the financial sector described above.  

While  the  application  of  sanctions  for  violations  of  EU  financial  services  legislation  is  the 
responsibility of national authorities, an insufficient application is an integral part of the problem 
addressed and should therefore be taken into consideration, with full regard to the limited scope 
for EU action on this matter.33 

Consequences of the problem drivers / Specific problems  

The  divergences  between  sanctioning  regimes  and  the  weaknesses  of  the  sanctioning  regimes 
described in the previous section may render the sanctions for breaches of EU financial services 
legislation  insufficiently  effective,  proportionate  and  dissuasive.  These  divergences  and 
weaknesses may also create distortions of competition in the Internal Market, which may be 
detrimental  to  the  protection  of  investors  and  consumers  of  financial  services  products  alike. 
Unequal treatment of violations in different Member States may result in different costs for the 
undertakings  engaged  in  financial  services  activities,  which  risks  creating  competitive 
disadvantages for undertakings from certain Member States and prevents the development of a 
level playing field within the Internal Market. In extreme circumstances, undertakings seeking to 
circumvent  financial  services  legislation  might  seek  to  establish  their  operations  in  those 
Member States with the least stringent sanctioning regimes. This could result in relaxed business 
practices  which  may  undermine  market  integrity  and  consumers  protection.  Further,  financial 
institutions  with  cross-border  operations  could  seek  to  exploit  the  differences  between  the 
legislation  in  force  in  different  Member  States.  This  is  particularly  relevant  in  view  of  the 
integrated nature of EU financial markets, many of which are dominated by cross-border groups 
(see section 3.1.1 above). 

For  example:  An  investment  company  based  in  Member  State  A  under  the  MiFID  regime  is 
subject to fines of no more than EUR 12 500 for breaches of that regime, whereas a subsidiary of 
the  same  company  based  in  Member  State  B  under  the  same  regime  may  be  subject  to  fines 
exceeding EUR 1 500 000.  

33 

See section 5.1 below. 

EN 

15 

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Those divergences and weaknesses of sanctioning regimes can also have a negative impact on 
the trust between national supervisors and hence on cross border financial supervision.  

The  crisis  exposed,  in  particular,  serious  failings  in  the  cooperation,  coordination,  consistency 
and  trust  among  national  supervisors.  In  today's  European  financial  markets,  in  which  many 
financial  firms  operate  on  a  cross-border  basis,  the  effectiveness  of  cross-border  supervision 
must be ensured. This requires cooperation, coordination and trust between national supervisors, 
something  that  cannot  be  realised  where  there  are  varying  sanctioning  regimes.  To  this  end,  a 
new  European  supervisory  architecture  has  been  set  up,  to  upgrade  the  quality  and  the 
consistency of national supervision and strengthen the oversight of cross border groups through 
the  setting  up  of  supervisory  colleges.  However,  a  supervisory  authority  could  be  unwilling  to 
delegate  powers  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. This is particularly relevant 
in  view  of  the  importance  of  cross-border  groups  in  EU  financial  markets  (see  section  3.1.1 
above). 

For  example:  If,  in  a  college  of  supervisors34,  the  authorities  of  Member  States  A,  B  and  C 
agreed  to  replace  the  managers  of  a  bank  at  central  and  subsidiary  level  because  of  failures  at 
both  levels,  the  authority  of  Member  State  A  would  apply  the  measure  without  difficulty,  the 
authority  of  Member  State  B  would  need  the  cooperation  of  other  national  authorities  and  the 
authority  of  Member  State  C  would  be  unable  to  do  anything,  because  it  lacks  the  necessary 
power.  

Where  supervision  is  faced  with  divergent  standards  in  both  the  level  and  type  of  sanctions 
available,  loopholes  can  appear  through  which  infringing  parties  may  manage  to  avoid 
appropriate penalties for illegal behaviour.  

General problems  

The specific problems identified in the previous section can result in a lack of compliance with 
EU  financial  services  rules,  such  as  prudential  rules,  conduct  of  business  obligations, 
transparency obligations, etc. 

For  example,  when  the  maximum  amount  of  the  pecuniary  sanctions  is  very  low,  even  for  the 
most  serious  infringements,  there  is  a  high  risk  that  sanctions  will  not  have  a  sufficiently 
dissuasive effect, as the perceived reward from such behaviour will far outweigh the real risk.  

For example: in the banking sector, when an infringement of banking law and money laundering 
occurs  in  some  Member  States,  the  competent  authorities  will  apply  fines  of  less  than  EUR 
150.000,  which  are  very  unlikely  to  have  a  dissuasive  effect  on  the  large  banking  groups 
operating in these Member States.  

Similarly, when the level of sanctions does not depend on the benefit resulting from the offence, 
it is very likely that they will not discourage further offences. Furthermore, even where sanctions 
are  linked  to  the  benefit  from  the  offence,  this  can  be  very  difficult  to  quantify  or  calculate 

34 

The college of supervisors is the forum in which all national authorities supervising a specific cross-border 
financial institution coordinate their activities  

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accurately. Thus the risk remains that sanctions will not consistently respect the seriousness of 
some violations.  

For example: in some Member States the fines for insider dealing are limited to EUR 200 000, 
while  the  profits  derived  from  such  violations  have  in  some  recent  cases  amounted  to  several 
millions of Euros.  

Divergences and weaknesses of sanctioning regimes may therefore deprive EU financial services 
rules  of  their  effectiveness:  it  can  increase  the  risk  of  market  manipulation  and  lack  of 
transparency and may lead financial institutions to take excessive risks in their activity, and can 
ultimately be detrimental to the proper functioning of financial markets.  

This  situation  risks  seriously  undermining  consumer  protection  and  market  integrity.  But 
improper functioning  of  financial  markets deriving from lack of compliance with EU  financial 
services  rules  can  also  negatively  affect  the  whole  economy.  Violations  of  these  rules  may 
indeed  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.  

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

For  example:  if  consumers  have  the  impression  that  financial  institutions  violating  the  laws 
protecting them against unsuitable investment advice or against improper use of money invested 
in funds do not have to fear deterrent sanctions, their reluctance to make efficient use of financial 
market opportunities – already severely hit by the financial crisis - may be further exacerbated. If 
consumers  will  be  reluctant  to  shop  around  Europe  if  they  feel  that  the  level  of  protection  of 
consumers and market integrity is significantly different in different Member States.  

3.2.1.  Affected stakeholders  

EU  action  aiming  at  approximating  and  reinforcing  sanctioning  regimes  in  the  financial  sector 
will affect all market players:  

–  financial institutions, including their stakeholders (the extent to which financial institutions of 
different nature and size would be affected would depend on the specific violations for which 
sanctions are applied); 

–  users of financial services, including depositors, investors, policy-holders, pensioners and non 

financial companies;  

–  public authorities, including central banks, supervisors and other national authorities in charge 

of the application of sanctions. 

3.2.2.  Baseline scenario 

The baseline scenario would be one in which no action is taken in this field by the Commission 
at this point. The EU would continue to build on the existing legal framework and continue to 
rely on the national sanctioning regimes, which are divergent both in substance and application, 
and are sometimes not sufficiently dissuasive.  

EN 

17 

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General clauses on sanctions already contained in sectoral Directives would be maintained and 
similar clauses would be included in future legislative proposals put forward by the Commission 
in  the  financial  services  sector.  The  Commission  proposal  for  a  regulation  on  over-the-counter 
(OTC) derivatives, central counterparties and trade repositories35 envisages also the introduction 
of a provision requiring that sanctions shall include at least administrative fines.  

Member States  would be therefore obliged to ensure that sanctions  are  effective, proportionate 
and dissuasive, but they would be free to decide how to achieve this result. As "guardian of the 
Treaties",  the  Commission  would  verify  that  Member  States  implement  correctly  the  rules  on 
sanctions  already  contained  in  the  sectoral  Directive.  In  case  it  believes  national  sanctioning 
regimes to be incompatible with these general rules, the Commission would have the possibility 
of  commencing  infringement  proceedings  against  Member  States  under  Article  258  of  the 
TFEU36, asking them to take the measures necessary to ensure correct application of the EU law. 
However,  the  existing  EU  rules  on  sanctions  being  very  general37,  those  rules  leave  a  certain 
margin  of  discretion  to  Member  States,  and  infringement  proceedings  would  probably  only  be 
successful in cases such as those where Member States do not  provide  any sanctions  at all for 
certain  violations.  In  other  cases,  it  would  be  very  difficult  for  the  Commission  to  gather  the 
evidence necessary to prove that national regimes are not effective, proportionate and dissuasive. 
Indeed, in the context of such an action, it is for the Commission to provide the Court of Justice 
with  all  the  evidence  needed  to  enable  it  to  establish  that  a  Member  State  fails  to  fulfil  the 
obligations  deriving  from  EU  law,  and  in  so  doing  the  Commission  may  not  rely  on  any 
presumption.  Within  this  scenario,  national  authorities  in  different  Member  States  would 
continue  to  have  different  sanctioning  powers  and  the  same  infringements  to  European  rules 
would  be  dealt  with  in  a  different  way  across  the  EU.  Member  States  with  strong  sanctioning 
regimes  could  be  reluctant  to  fully  trust  those  with  weaker  sanctioning  regimes,  making  it 
difficult  to  ensure  effective  cross  border  supervision.  The  Commission  would  continuously 
monitor  the  functioning  of  sanctioning  regimes  and  would  assess  the  need  for  policy  action  at 
later stage.  

The  baseline  scenario  takes  into  account  that  the  existing  coordination  work  of  the  Level  3 
committees  will  be  further  enhanced  with  the  creation  of  the  new  European  Supervisory 
Authorities. Already today, CESR has established a Standing Committee (CESR-Pol) which has 
responsibility  for  CESR  work  related  to  co-operation  and  coordination  of  surveillance  and 
enforcement  activities  between  national  supervisors.  Once  created,  the  new  Authorities  would 
continue such work and could play an important role in increasing the coherence and monitoring 
the  application  of  sanctions.  The  new  Authorities  will  have  powers  to  play  an  active  role  in 
building a common supervisory culture. In particular, they can 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 in order to monitor national legislation and to 
promote  exchange  of  information  and  best  practices  between  Member  States.  Moreover,  they 
have the power to settle disagreements between national authorities, in some areas that require 

35 
36 

37 

COM(2010) 484. 
Article 258 provides that the Commission may take action against a Member State for failing to fulfil an 
obligation  under  the  Treaties.  In  particular,  the  Commission  may  formally  request  the  Member  State  to 
bring  the  infringement  of  EU  law  to  an  end,  and  if  the  MS  does  not  take  appropriate  correct  measures 
necessary, it can refer the case to the European Court of Justice.  
The  standard  clauses  contained  in  the  sectoral  Directives  require  Member  States:  -  to  provide  that 
appropriate  administrative  measures  can  be  taken  or  administrative  sanctions  be  imposed  against  the 
persons  responsible  where  the  provisions  adopted  in  the  implementation  of  the  Directives  have  not  been 
complied with, and – to ensure that these measures are effective, proportionate and dissuasive. 

EN 

18 

   EN 

                                                 
cooperation,  coordination  or  joint  decision-making  by  supervisory  authorities  from  more  than 
one Member State. Those possibilities will exist regardless of any additional policy action by the 
EU. 

The  European  Securities  and  Markets  Authority  (ESMA)  would  probably  be  empowered  to 
adopt  supervisory  measures  where  a  credit  rating  agency  has  committed  a  breach  of  the 
Regulation,  as  envisaged  in  the  proposal  tabled  by  the  Commission  for  the  revision  of  the 
regulation on credit rating agencies (CRA Regulation)38.  

In  the  baseline  scenario  no  clear  and  consistent  guidance  is  provided  to  Member  States  on  the 
type and the level of sanctions to be applied to certain violations. Therefore, it is very likely that 
national sanctioning regimes would not reach a degree of approximation ensuring that sanctions 
are always dissuasive and effectively enforced.  

In the baseline scenario, financial institutions will also be subject to reputational damage linked 
to  a  violation  that  becomes  public.  This  supposes  that  the  public  is  aware  of  the  sanctions 
imposed, which is not the case where information about violations or sanctions is not published. 
Moreover,  the  reputational  damage  depends  also on  the  level  of  fines  imposed:  very  low  fines 
may be associated to minor violations which are unlikely to seriously undermine the reputation 
of their perpetrator.  

In the baseline scenario, financial institutions will also be subject to civil liability for violations 
in accordance with national law. However, its deterrent effect is limited as it does not cover all 
possible violations of EU financial services rules: civil action cannot be always taken against the 
perpetrator/s  of  the  violation  and/or  the  damages  caused  by  the  violation  can  often  not  be 
quantified  (e.g.  a  violation  of  capital  adequacy  or  reporting  requirements  by  a  financial 
institution  –  a  severe  violation  of  the  relevant  directives  –  does  not  always  lead  to  any  actual 
damage until an institution finds itself in severe difficulties as a result). In any case, the purpose 
of civil actions is to compensate damages incurred by third parties, which would probably not be 
deterrent in cases where the profit derived from the violation is higher than the damages to be 
compensated.  

At the international level, the EU would continue to push for rigorous enforcement of financial 
regulations in order to get more effective, proportionate and dissuasive sanctions, but the lack of 
common  standards  at  EU  level  would  make  it  difficult  to  propose  concrete  measures  to  be 
adopted  at  international  level.  Lack  of  European  common  standards  would  weaken  the  EU 
credibility at international level. 

38 

See footnote 16. 

EN 

19 

   EN 

                                                 
Problem tree * 

Problems drivers 

Weaknesses 
sanctioning regimes, relating to: 

and 

divergences 

Specific problems 

General problems 

in 

1. Type and level of administrative sanctions 

• 

• 

• 

Low level of fines 

Lack of certain sanctioning powers 

Considerably different type and level of sanctions 

2. Addressee of administrative sanctions 

• 

Not  always  applicable  to  both  natural  and  legal 
persons responsible 

3.  Factors  taken  into  account  when  determining  the 
administrative sanctions 

• 

• 

Sanctions not linked to relevant criteria 

Different criteria for application of sanctions 

4.  Criminal sanctions 

• 

Criminal sanctions not foreseen 

• 

Divergence 
sanctions 

in 

the  application  of  criminal 

5. Application/enforcement of sanctions 

• 

incentives 

No 
insufficient detection of violation 

to 

report  misconducts  => 

• 

Different level of application of sanctions 

Lack of compliance with 
EU rules (prudential rules, 
conduct of business 
obligations) 

Leading to 

Improper functioning of 
financial markets in the 
Internal Market 

•  Risk to financial 
stability, eg. 
excessive risk taking 

•  Risk of consumer 

detriment  
•  Risk to market 

integrity (e.g market 
manipulation) 

•  Undermined 

confidence in the 
financial sector  

Lack of 
dissuasiveness, 
effectiveness and 
proportionality of 
sanctions  

Unlevel playing 
field 

No trust between 
national 
supervisors => 
Ineffective 
supervision 

* The grey parts of the problem tree refer to problems mainly relating to divergences in sanctioning regimes while 
the white parts refer those mainly relating to weaknesses  

3.3. 

The EU's right to act and justification  

EU legislation on financial services is based on the Treaty provisions on the establishment of the 
Internal  Market,  particularly  those  aiming  at  ensuring  the  freedom  of  establishment  (article  49 
TFEU)  which  enables  an  economic  operator  to  carry  on  an  economic  activity  in  a  stable  and 
continuous way in one or more Member States, and the freedom to provide services (article 56), 
which enables an economic operator providing services in one Member State to offer services on 
a temporary basis in another Member State. 

EN 

20 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
The  overall  objective  of  the  financial  services  legislation  is  to  create  integrated,  open, 
competitive, and economically efficient European financial market, where financial services can 
circulate freely at the lowest possible cost throughout the EU, with adequate and effective levels 
of prudential control, financial stability and a high level of consumer protection. 

The corollary of an integrated financial services market is that the same unlawful conduct incurs 
similar sanctions wherever the infringement is committed in the European Union. Such sanctions 
should be sufficiently dissuasive in order to discourage future wrongdoings. In this way, the EU 
would  put  out  a  strong  message  that  certain  conducts  are  unacceptable  and  punishable  on  an 
equivalent  basis,  which  would  increase  confidence  in  the  financial  sector.  This  requires  some 
convergence in sanctioning regimes across the EU.  

The legal bases for EU level action in this specific field are: Articles 53, para. 1 and 62 TFUE, 
which provide the EU legislature with the possibility of adopting directives for the coordination 
of the provisions concerning the taking-up and pursuit of activities as self-employed persons and 
the provision of services in the Internal Market, and Article 114 TFEU on the approximation of 
laws, according to which the European legislator can adopt "measures for the approximation of 
the  provisions  laid  down  by  law,  regulation  or  administrative  action  in  Member  States  which 
have as their object the establishment and the functioning of the Internal Market." The object of 
measures adopted on the basis of Article 114 TFEU must genuinely be to improve the conditions 
for the establishment and functioning of the internal market.39 

The European legislature therefore has discretion as to the method of approximation which is the 
most appropriate in order to improve the conditions for the establishment and proper functioning 
of  the  Internal  Market40.  This  may  include  the  approximation  of  national  laws  concerning  the 
type and level of administrative sanctions to be imposed.  

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.  

3.3.1.  Subsidiarity principle  

Convergence of national sanctioning regimes seems necessary to promote dissuasiveness thereby 
ensuring a level playing field, a uniform application of EU financial services legislation, and full 
cooperation  and  mutual  trust  between  national  supervisors  across  the  EU.  These  objectives 
cannot be sufficiently achieved by the Member States alone.  

Better application of the existing sanctioning powers by competent authorities at national level 
could  increase  the  effectiveness  of  sanctioning  regimes  but  such  an  improvement  of  the 
application  would  not  be  sufficient  to  approximate  the  sanctioning  powers  provided  for  in 
national  legislation,  which  seems  necessary  to  ensure  that  all  national  authorities  have  at  their 
disposal comparable sanctioning powers. 

39 

40 

Case C-58/08 Vodafone and Others v. Secretary of State for Business, Enterprise and Regulatory Reform 
Judgment of the Court 8 June 2010. 
In  United  Kingdom  v  Parliament  and  Council,  that  by  using  the  expression  ‘measures  for  the 
approximation’ in Article 95 EC (now Article 114 TFEU) the authors of the Treaty intended to confer on 
the EU legislature a discretion as regards the method of approximation most appropriate for achieving the 
desired  result,  in  particular  in  fields  with  complex  technical  features.  Case  C-217/04  United  Kingdom  v 
Parliament and Council [2006] ECR I-3771 

EN 

21 

   EN 

                                                 
In  order  to  ensure  that  violations  of  financial  services  legislation  are  adequately  sanctioned 
across  the  EU,  and  supervisors  can  develop  mutual  trust  that  each  of  their  counterparts  has 
appropriate  sanctioning  powers  at  its  disposal,  it  must  be  ensured  that  sanctioning  powers 
available in every single Member State adhere to a common minimum standard. That can only 
be achieved by EU action. 

EU  action  is  therefore  needed  to  achieve  sufficient  convergence.  The  objectives  of  the 
Communication  can  therefore  be  better  achieved  through  EU  action  rather  than  by  different 
national initiatives. 

The communication will put forward proposals to approximate the Member  States'  legislations 
on  sanctions  in  the  financial  sector,  based  on  common  principles  to  be  applied  consistently 
across  the  European  Union.  This  appears  particularly  important  when  considering  that  EU 
financial markets are increasingly integrated, especially at the wholesale level41.  

Any  future  legislative  initiative  in  this  field  will  be  accompanied  by  new  impact  assessments 
analysing the need for the measures proposed and their impacts. 

3.3.2.  Proportionality  

Actions  proposed  in  the  communication  will  not  go  beyond  what  is  necessary  to  achieve  the 
objective  of  reducing  divergences  in  national  sanctioning  regimes  and  reinforcing  sanctions  to 
the extent this is necessary to ensure effective application of EU legislation.  

The  existing  divergences  between  sanctioning  regimes  partly  reflect  the  specificities  of  the 
different national legal systems and traditions, At the same time, the objective of a sufficiently 
effective, proportionate, and dissuasive sanctioning regimes, as established by the EU legislative 
acts in the field of financial services, is shared by all Member States. Such specificities do not 
justify a significantly different treatment of violations of EU financial services rules in different 
parts of the Internal Market.  

The measures suggested in the communication will promote further convergence while ensuring 
respect for different national legal systems and traditions. Changes in national legislation will be 
necessary only where the existing rules do not comply with some basic standards of an efficient 
sanctioning regime. Similarly, Member States will be obliged to put in place new administrative 
procedures  only  to  the  extent  these  basic  standards  so  require.As  to  the  regional  and  local 
dimension of the action envisaged, it is worth noting that the issues relating to sanctions in the 
area  of  financial  services  are  in  most  cases  enshrined  in  national  legislation  and  applied  by 
competent  authorities  at  national  level.  At  this  stage,  no  specific  implications  of  the  envisaged 
actions for certain regions or localities can be identified.  

3.3.3.  Fundamental Rights  

Possible impacts on relevant fundamental rights will have to be considered in any proposals 
to approximate Member States' legislation on sanctioning regimes in the financial sector. 

The  following  fundamental  rights  of  the  Charter  of  Fundamental  Rights  are  of  particular 
relevance: 

41 

See EFIR 2009, footnote 3 above. 

EN 

22 

   EN 

                                                 
•  Equality before the law (Art. 20) 

•  Non-discrimination (Art. 21) 

•  The fundamental rights provided for in Title VI Justice: right to an effective remedy and to a 
fair  trial  (Art.  47);  presumption  of  innocence  and  right  of  defence  (Art.48),  principles  of 
legality and proportionality of criminal offences and penalties (Art. 49), right not to be tried or 
punished twice for the same offence (Art.50) 

Greater convergence achieved through the approximation of sanctioning regimes will ensure non 
discrimination and equal treatment of the authors of the violations as between Member States. In 
particular, the measures proposed in this respect will better ensure that comparable violations are 
not dealt with differently and different violations are not dealt with alike, unless such differences 
are  objectively  justified.  When  dealing  with  the  reinforcement  of  sanctions  particular  attention 
will be paid to proportionality issues. More severe sanctions will be proposed only to the extent 
the existing ones are not appropriate to attain the objective pursued by the rules which have been 
breached.  

4. 

OBJECTIVES 

EU action on the approximation and reinforcement of sanctioning regimes could satisfy several 
mutually complementary objectives. It could benefit supervisors and other national authorities in 
charge  of  the  application  of  sanctions:  they  would  have  more  appropriate  instruments  to  deal 
with  the  infringements,  which  would  help  in  preventing  future  breaches  of  EU  law.  More 
convergent sanctioning  regimes  could  also raise mutual  trust  between supervisors and  ease the 
implementation  of  their  decisions.  More  effective  supervision  and  better  prevention  of 
infringements would be beneficial to the whole financial system, in terms of consumer protection 
and safety, stability and integrity of financial markets.  

The general policy objectives of this exercise are the following:  

•  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 contributing to a proper functioning of financial markets 

To achieve these general objectives, the following specific objectives must also be ensured: 

•  The effectiveness, proportionality and dissuasiveness of sanctions; 

•  The  development  of  a  level  playing  field  which  reduces  the  opportunities  for  regulatory 

arbitrage; 

•  The effective supervision of financial services providers. 

The  specific  objectives  listed  above  require  the  attainment  of  the  following  operational 
objectives: 

EN 

23 

   EN 

•  Reinforcement of sanctioning regimes 

•  Approximation of sanctioning regimes 

5. 

POLICY OPTIONS, IMPACT ANALYSIS AND COMPARISON 

For  the  purposes  of  this  impact  assessment,  the  analysis  is  at  this  stage  limited  to  a  general 
assessment of the possible options, aimed at approximating and reinforcing national sanctioning 
regimes. Policy options considered do not deal with specific measures needed in the three main 
sectors concerned (banking, insurance, securities), which will be assessed at the later stage when 
the Commission makes firm proposals. Policy options have been identified on the basis of both 
the  content  (issues  covered)  and  the  nature  (legally  binding  or  not)  of  the  measures  proposed. 
The  latter  aspect  is  relevant  in  the  context  of  this  analysis,  given  that  the  legal  nature  of  the 
measures proposed is likely to have a significant impact on the degree to which the objectives of 
approximating  and  reinforcing  national  regimes  can  be  achieved,  but  also  because  it  will  be 
perceived by Member States - key stakeholders in the context of this initiative – as determining 
to a large extent the impact any measure proposed is likely to have on them. The analysis covers 
the  main  policy  issues  identified  on  the  basis  of  the  available  information,  which  does  not 
exclude  that  additional  issues  could  be  identified  following  the  consultation  of  stakeholders 
launched with the Communication, and addressed in the future Commission's proposals. 

In  order  to  assess  and  compare  the  policy  options,  an  analysis  of  their  main  impacts  has  been 
carried out against criteria deriving from the problems identified in the current situation and the 
operational objectives of this proposal. The analysis takes also into account the different impact 
on  the  stakeholders  concerned  and  the  issues  relating  to  proportionality,  subsidiary  and  the 
impact  on  fundamental  rights  of  each  option.  The  options  are  compared  with  regard  to  the 
criteria of effectiveness and efficiency according to the following definitions: 

Effectiveness: the extent to which options achieve the objectives of the proposal; 

Efficiency: the extent to which objectives can be achieved for a given level of resources/at least 
cost.  

The  following  schema  is  used  to  compare  the  contribution  of  the  different  options  to  the 
achievement of the objectives: √√ (strong positive) √ (positive), 0 (neutral). 

In  view  of  the  limits  of  the  data  available  and the  nature  of  the  subject-matter,  no  attempt  has 
been made to quantify the impacts of each option. By definition, it is very difficult to estimate 
the number of undetected violations and therefore quantify their potential impact. The analysis is 
therefore of qualitative nature. 

5.1. 

Policy options relating to the content of the measures 

This  section  explains  the  main  issues  to  be  addressed  in  order  to  achieve  the  objectives  of 
approximating and reinforcing national sanctioning regimes. In view of the problem as defined 
in section 3.2 above, we have identified the following issues for potential EU action:  

EN 

24 

   EN 

–  EU  action  concerning  the  type  of  administrative  sanction  and  level  of  pecuniary 

administrative sanctions; 

–  EU action concerning the addressees of administrative sanctions; 

–  EU action concerning the factors taken into account when determining the sanctions; 

–  EU action concerning criminal sanctions; 

–  EU action to support effective application of sanctions. 

For each issue, different policy options have been analysed as to the content of the measures that 
may be taken to this purpose. Finally, those options have been compared and a set of preferred 
policy options identified. 

ISSUE  1:  Type  of  administrative  sanction  and  level  of  pecuniary  administrative 
sanctions  

This  issue  addresses  the  type  of  administrative  sanctions  applicable  in  the  different  Member 
States for violations of EU financial services rules, including the publication of sanctions, which 
can be considered itself a (complementary) sanction. As to the pecuniary sanctions in particular, 
this  issue  concerns  the  minimum  and  maximum  level  of  such  sanctions  foreseen  in  national 
legislations. 

Options 

Description 

1: no EU action 

Member  States  are  obliged  only  to  ensure  that  their  legislation  on  type  of  administrative 
sanctions and level of pecuniary sanctions complies with the general obligation to guarantee 
"effectiveness, proportionality and dissuasiveness of sanctions" already contained in sectoral 
Directives.  

Member  States  maintain  their  legislation  unchanged  insofar  they  consider  type  and  level  of 
sanctions envisaged are sufficiently effective, proportionate and dissuasive. 

minimum 

2: 
common 
provisions  on  type 
administrative 
of 
sanctions  and  level 
of 
pecuniary 
sanctions  for  key 
violations 

Some common provisions on the type of sanctions that should be available to the competent 
authorities in all Member States for certain key violations. (For instance, common provision 
that  withdrawal  of  authorisations  should  be  available  in  case  of  recurrent  violation  of  key 
provisions of the EU Directives, that the publication of sanctions should be always envisaged, 
that  cease  and  desist  orders  could  be  issued  to  stop  unauthorised  activities,  that 
dismissal/disqualification of managers should be available in case of serious wrongdoings in 
the management) 

Common  minimum  provisions  to  ensure  that  level  of  pecuniary  sanctions  for  certain  key 
violations  or  categories  violations  is  sufficiently  high  to  ensure  dissuasiveness  (e.g.  that  the 
maximum level significantly exceeds the benefit derived from the infringement, if this can be 
calculated  or  estimated,  and  that  a  minimum  level  is  provided  for  very  serious  violations 
which  reflects the  seriousness  of  the  violation). Member  States  could  set  those  levels  at  the 
level determined by the EU or higher, or could provide for an unlimited maximum level. 

Would  lead  to  an  increased  convergence  of  sanctioning  regimes  while  preserving  some 
Member  States  discretion  on  the  type  and  level  of  sanctions  applicable  to  violations  of  EU 
financial services legislation.  

Key violations would be treated in a uniform way across Europe 

The same type of sanctions and level (minimum and maximum) of pecuniary sanctions would 
be  provided  for  in  all  national  legislations  for  violations  of  key  provisions  of  the  EU 
Directives.  Member  States  would  not  be  allowed  to  stipulate  different  types  of  sanctions  or 

3:  uniform  type  of 
administrative 
sanctions  and  level 
of 
pecuniary 
sanctions  for  key 

EN 

25 

   EN 

violations 

different  levels  of  fines  applicable  to  those  violations  while  they  would  maintain  their 
discretion in deciding sanctions applicable to other violations. 

4:  uniform  type  of 
administrative 
sanctions  and  level 
pecuniary 
of 
across 
sanctions 
EU 
all 
violations 

for 

All Member States provide for the same type of sanctions and level of pecuniary sanctions in 
their  national  legislations.  Each  violation  of  EU  financial  services  would  be  dealt  with  in  a 
uniform way wherever it was committed.  

Uniform  provisions  would  regulate  the  types  of  administrative  sanctions  applicable  for 
violation  of  each  specific  rule  of  the  financial  services  Directives.  For  pecuniary  sanctions, 
fixed minimum and maximum level.. 

•  Policy option 1: no EU action 

In  the  absence  of  any  action  at  EU  level,  Member  States  would  hardly  be  willing  to  compare 
type of sanctions and level of pecuniary sanctions they envisage with those envisaged in other 
Member States, and to question the effectiveness of their own regime. This implies that type and 
level  of  sanctions  would  probably  remain  divergent  and  not  always  optimal  in  terms  of 
dissuasiveness. The Commission could verify whether national provisions on type and level of 
sanctions comply with the general clause contained in the sectoral Directives which requires that 
sanctions  are  effective,  proportionate  and  dissuasive.  However,  it  would  be  extremely  difficult 
for  the  Commission  to  initiate  infringement  procedures  against  Member  States  on  that  basis, 
given that the infringement of such general clauses would be very difficult to prove.  

The  new  ESAs  would  also  monitor  the  functioning  of  national  sanctioning  regimes  and  would 
have  the  possibility  to  address  breaches  of  EU  law.  They  could  actively  promote  further 
convergence by guidelines and recommendations.  

•  Policy  option  2:  minimum  common  provisions  on  type  of  administrative  sanctions  and 

level of pecuniary administrative sanctions  

As regards option 2, applying minimum common criteria would help in ensuring that violations 
of  financial  services  legislation  are  dealt  with  in  a  similar  way  in  all  Member  States.  This 
reinforces  the  development  of  a  level  playing  field  in  European  financial  services  markets,  as 
undertakings would risk incurring  similar – even if not identical - sanctions and therefore bear 
similar costs42 wherever they breach financial services legislation. Knowing that the response to 
violations of financial services rules is broadly equivalent throughout the EU would also increase 
consumer confidence and may lead to more cross border selling of financial services products, 
reducing the fragmentation of the single market along national lines. Further, the application of 
minimum  common  criteria  will  help  improve  cross-border  supervision,  by  ensuring  that  all 
competent  national  authorities  have  equivalent  minimum  sanctioning  powers,  at  least  for  key 
breaches of financial services legislation.  

This option would increase the dissuasive effect of sanctions at least in all Member States which 
currently have levels of sanctions which are too low. Ensuring that the level of fines envisaged in 
national legislations cannot be lower than the level determined by the EU would  allow for the 
imposition  of  fines  that  are  optimal  in  terms  of  dissuasiveness  and  proportionality  and 
consequently reduce risks of violations of EU legislation.43 A higher level of sanctions signals in 

42 
43 

This term would be broadly defined as to include all potential negative consequences. 
See references above (Footnote 22). 

EN 

26 

   EN 

 
                                                 
fact to any potential author of a violation that this violation is considered by public authorities as 
highly damaging. Moreover, it reduces the likelihood that the author can expect to benefit from 
the violation. In fact, the amount of sanctions imposed is considered in academic literature as an 
intermediate indicator for the level of enforcement in certain jurisdictions.44 This would have a 
significant positive impact on consumers protection (e.g. increased compliance with conduct of 
business  rules),  on  competition  between  financial  institutions  (e.g.  removing  the  competitive 
advantages derived from violations of financial services legislation), and to safety and integrity 
of financial markets (e.g. fewer cases of market abuse/manipulation, increased compliance with 
prudential  rules).  At  the  same  time  it  would  not  prevent  Member  States  to  go  beyond  the  EU 
minimum criteria, and fine other violations, provide for higher levels of fines or for further types 
of sanctions.  

Concerning  the  impact  on  Member  States,  this  option  would  require  changes  in  national 
legislations  in  certain  Member  States,  while  other  Member  States  would  make  no  changes  or 
only minimal changes. Types and level of sanctions provided for in national legislations should 
be revised only to the extent this is necessary to comply with the minimum standards, which is 
possibly not even the case in all Member States. Therefore, compliance costs for Member States 
are  expected  to  be  limited.  Moreover,  the  discretion  that  Member  States  would  maintain  in 
defining  type  and  level  of  sanctions,  would  allow  them  to  provide  for  sanctions  which  best  fit 
their different legal systems and traditions. 

•  Policy option 3: uniform type and level of administrative sanctions for key violations 

Option 3 would ensure that identical sanctions are provided for in all Member States at least for 
violations  of  the  most  important  provisions  of  the  EU  Directives.  This  would  assist  the 
development of a level playing field in the European financial market by reducing  the potential 
advantage  that  financial  institutions  may  derive  from  differing  national  regimes.  This  option 
could also increase consumer confidence and mutual trust between supervisors, leading to more 
efficient cross-border supervision.  

Similarly  to  option  2,  this  option  could  increase  the  deterrent  effect  of  sanctions  and 
consequently  reduce  risks  of  violations  of  EU  law,  which  would  have  a  significant  positive 
impact on consumer protection, competition, safety and integrity of financial markets. However, 
the fact that 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 could weaken the overall 
deterrence of some national regimes.  

This  option  would  probably  require  significant  changes  in  all  national  legislations  in  order  to 
make uniform types and levels of sanctions for key violations of EU rules and would eliminate 
any flexibility in dealing with such violations. Therefore, compliance costs could be higher than 
in  Option  2  and  the  uniform  regime  might  not  suit all national legal systems and cultures.  For 
instance, Member States would be obliged to change the levels of pecuniary sanctions applicable 
to those violations, even where they are only slightly different from the harmonised levels, and 
they would no longer be allowed to provide for types of sanctions different from the harmonised 
ones (e.g. for violations of additional requirements which are allowed - but not required for all 
Member  States  –  under  EU  Directives).  Some  of  them  would  also  have  to  provide  for  the 
application of new types of sanctions.  

44 

See  references  quoted  above  (Footnote  22),  in  particular  CRA  International,  p.  31;  John  C  Coffee,  p.  13 
ssq.  

EN 

27 

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•  Policy option 4: uniform type and level of administrative sanctions across EU 

Option 4 would eliminate any divergence as to the types and levels of sanctions applicable to all 
violations of EU rules, not just key ones, which would therefore have the effect of harmonising 
all sanctions in all Member States. As with Option 2, his would ensure a level playing field in the 
European  financial  market:  financial  institutions  would  not  take  any  advantage  from  different 
national regimes. Again, this could also significantly increase consumer confidence and mutual 
trust between supervisors leading to more efficient cross-border supervision.  

Similarly  to  options  2  and  3,  this  option  would  increase  the  deterrent  effect  of  sanctions  and 
consequently  reduce  risks  of  violations  of  EU  law,  which  would  have  a  significant  positive 
impact on consumer protection, competition, safety and integrity of financial markets.  

This option would have a huge impact on Member States, even greater than that of Option 3 as 
more infringements would be covered: it would probably require major changes in all national 
legislations in order to make uniform types and level of sanctions. Similarly to Option 3,  levels 
of sanctions would have to be modified in almost all Member States,  types of sanctions different 
from the common ones would not be allowed any more and some Member State would have to 
provide for the application of new types of sanctions. But under this Option such changes would 
have  to  be  made  for  all  violations  of  EU  financial  rules.  This  could  require  the  overall  legal 
system  to  be  revised,  new  procedures  to  be  put  in  place  and  institutional  architecture  to  be 
adapted. Therefore, compliance costs could be significant and the uniform regime could not fit 
national  legal  system  and  culture  in  different  Member  States.  Uniform  types  and  levels  of 
sanctions  could  also  jeopardise  the  dissuasiveness  of  sanctions  in  some  cases.  For  example, 
Member States would not be able to sanction certain violations that may not be provided for in 
the uniform EU framework, even if specific national circumstances (e.g. additional requirements 
which are allowed - but not required for all Member States – under EU Directives) would require 
such sanctions.  

Comparison of options 

The  objectives  outlined  in  section  4  cannot  be  achieved  under  option  1,  which  preserves  the 
"status quo" and thus the problems identified in section 3.2. Although the ESAs could promote 
further  convergence  on  the  types  and  level  of  sanctions,  this  action  would  hardly  be  effective 
without  an  EU  framework  being  in  place.  Option  4  would  be  the  most  effective  in  terms  of 
ensuring level playing field and better cross-border supervision, as it eliminates any divergence 
in types and level of sanctions. The effectiveness of Option 3 would be slightly lower because 
divergences would persist for certain "non-key" violations. Option 2 would be less effective in 
this  regard  but  it  would  permit  to  better  adapt  sanctions  to  the  specificities  of  the  different 
national  legal  systems.  As  to  consumer  confidence  and  protection,  the  difference  in  the 
effectiveness of options 2, 3 and 4 is minor: they can be considered equally effective as far as 
appropriate minimum standards are set, that will be perceived as being sufficient to ensure that 
violations are adequately punished on an equivalent basis.  

Options  2,  3  and  4  are  considered  to  be  similarly  effective  in  terms  of  ensuring  deterrence: 
uniform types and level of sanctions are not necessarily more dissuasive than different sanctions 
complying  with  minimum  standards  which  are  sufficiently  strict.  Moreover,  Option  2  (and 
Option 3 but only for less important violations) would allow for the provision of additional types 
of sanctions and higher level of fines, which can increase dissuasiveness in some Member States.  

EN 

28 

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Regarding  efficiency,  Option  2  seems  more  efficient  than  option  3  and  4  as  it  leads  to  lower 
compliance costs for Member States.  

Effectiveness in achieving the objectives below 

Efficiency in achieving 
all objectives 

Improve  dissuasiveness 
of sanctions 

Develop 
playing field 

level 

Improve trust between 
supervisors 

1. Do nothing 

2.  minimum 
criteria for key violations 

common 

3.  uniform  type  and  level 
for key violations 

3.  uniform  type  and  level 
for all violations 

0 

√√ 

√ 

√ 

0 

√ 

√√ 

√ √ 

0 

√ 

√√ 

√ √ 

0 

√ √ 

√ 

√ 

ISSUE 2: Addressees of administrative sanctions 

This issue deals with the possibility to apply sanctions to natural persons (individuals) and/or to 
legal  persons  (financial  institutions)  responsible  for  a  violation  of  EU  financial  services 
legislation. The following options do not envisage the possibility that all sanctions are applicable 
to  natural  persons  only  or  to  legal  persons  only,  as  there  are  no  reasons  justifying  such  a 
restriction of the personal scope of sanctions.  

Options 

Description 

1: no EU action 

In some Member States certain sanctions would remain applicable to natural persons or to 
legal persons only, even where individuals and financial institutions are jointly responsible 
for an infringement. 

2: 
sanctions 
applicable  to  both 
natural  and 
legal 
persons 

EU action ensuring that in all Member States both legal and natural persons may be held 
liable for the violation of financial services legislation.  

Administrative  sanctions  would  be  applied  to  the  individual  who  committed  a  violation 
and to the financial institution which benefited from this violation. Legal persons would be 
responsible for the violation committed on their behalf by any person who has a leading 
position within the legal person. 

•  Policy option 1: no EU action  

In the absence of any action at EU level, Member States would probably not extend the personal 
scope  of  sanctions  as  currently  provided  in  their  legislations.  The  fact  that,  in  some  Member 
States, natural or  legal persons responsible for a violation will evade sanctions  for their illegal 
behaviour  would  probably  not  ensure  optimal  dissuasiveness.  The  problems  relating  to  the 
divergences  of  sanctioning  regimes  (unlevel  playing  field,  inefficient  cross  border  supervision, 
etc) would remain unsolved. 

•  Policy option 2: sanctions applicable to both natural and legal persons  

Under this option, when competent authorities establish that the responsibility for a violation is 
on  a  natural  person  or  a  legal  person  or  both  of  them,  they  will  apply  sanctions  to  all  those 

EN 

29 

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persons.  This  would  significantly  increase  dissuasiveness  of  sanctions:45  knowing  that  they 
cannot escape the negative consequences of their illegal behaviours, for instance, the managers 
of financial institutions would be discouraged from reiterating such behaviours and the financial 
institutions  would  be  encouraged  to  take  the  organisational  measures  to  prevent  violations 
committed by their staff. Increased dissuasiveness of sanctions would ensure better compliance 
with  EU  rules,  with  positive  impacts  on  consumer  protection,  fair  competition,  safety  and 
integrity of financial markets.  

Harmonising the personal scope of sanctions across Member States would also have a positive 
impact on the level playing field in the European financial market, as the players would risk to 
be  held  liable  for  violations  of  EU  rules  wherever  they  operate  in  the  European  Union.  This 
would also increase consumer confidence and mutual trust between supervisors.  

This  option  would  require  legislative  measures  to  be  taken  at  national  level  only  in  Member 
States where the scope of sanctions do not cover both natural and legal persons responsible for 
the violation. On the basis of the information available from the Committees of Supervisors, this 
would concern three Member States in the banking sector, ten Member States in the insurance 
sector.46 Those measures should not lead to major changes in national legal systems. 

Comparison of options 

Option  1  would  not  achieve  any  of  the  objectives  outlined  in  section  4  while  Option  2  would 
help  in  ensuring  level  playing  field  and  better  cross-border  supervision  and  would  increase 
dissuasiveness of sanctions.  

Effectiveness in achieving the objectives below 

Efficiency  in  achieving 
all objectives 

Improve  dissuasiveness  of 
sanctions 

Develop 
playing field 

level 

Improve  trust  between 
supervisors 

1. Do nothing 

2.  sanctions  applicable 
natural and legal persons 

to  both 

0 

√ 

0 

√ 

0 

√ 

0 

√  

ISSUE 3: Factors taken into account when determining the sanctions  

This  issue  concerns  the  elements  to  be  taken  into  account  by  competent  authorities  when 
deciding the type of administrative sanctions and/or calculating the amount of the administrative 
pecuniary sanction to be applied to the author of a specific violation. This includes, for instance, 
the  gravity  of  the  violation,  the  benefits  for  the  author  of  the  infringement  derived  from  the 
violation, the financial strength of the author of the infringement and his cooperative behaviour. 

Options 

Description 

1: no EU action 

Factors  taken  into  account  by  the  different  national  authorities  continue  to  be  partly 
different.  

Member  States  would  not  be  encouraged  to  revise  their  national  legislations  in  order  to 
modify or integrate the factors to be taken into account in deciding types and amount of 

45 
46 

See references quoted above (Footnote 22), in particular Granlund. 
CEBS report, p. 58, and reply sheets from national authorities; CEIOPS report, p. 18-20, 41, 43, 102, 106-
110, 149 

EN 

30 

   EN 

 
                                                 
the sanctions imposed. 

2: 
key 
some 
factors  to  be  taken 
into  account  by  all 
authorities 

EU action to establish some common key factors to be taken into account by all competent 
national authorities when determining the level of a sanction. 

For  instance, EU  action  to  establish  that  competent  authorities  have  to  take  into  account 
the benefits derived from the violation (provided that they can be calculated), the financial 
strength of the author of the infringement (e.g. the annual income of an individual or the 
assets  of  a  legal  person),  any  cooperation  by  the  authors  of  the  infringement  in  the 
investigation, or any recurrence of violations.  

Member  States  could  take  into  account,  in  addition  to  those  common  factors,  any  other 
factor they consider relevant. 

of 
list 
3: 
exhaustive 
and 
identical  factors  to 
into 
be 
taken 
account 
all 
national authorities 

by 

EU action to precisely define all factors to be taken into account by competent authorities 
in order to ensure sanctions imposed are effective, proportionate and dissuasive. Therefore, 
the  same  factors  would  be  applied  by  competent  authorities  throughout  the  European 
Union, including the key factors mentioned in option 2. Competent authorities would not 
be allowed to consider other factors. 

•  Policy option 1: no EU action 

Under this option, while almost all Member States take into account the gravity of the violation, 
other factors such as the impact of the violation (e.g. benefits gained or losses caused) and the 
personal conditions of the author of the infringement (e.g. his financial strength), would be taken 
into account only in some Member States or for certain violations. 

The  existing  convergence  in  considering  the  gravity  of  the  violation  would  probably  be 
insufficient  to  ensure  optimal  dissuasiveness  and  the  other  factors  would  probably  remain 
divergent.  

•  Policy option 2: some key factors taken into account by all national authorities 

This option would allow competent authorities to better adapt the type and the level of sanctions 
imposed to the impact of the violation and the personal conditions of the offenders, which would 
help ensuring effectiveness, proportionality and dissuasiveness of the sanctions actually applied. 
Providing for similar types and level of sanctions in national legislations could be insufficient to 
ensure  that  the  perpetrators  of  similar  violations  would  incur  similar  sanctions  in  different 
Member States if the factors taken into account to determine the actual sanctions imposed were 
completely different. This option would lead to increased convergence in the way sanctions are 
applied by competent authorities across Europe while maintaining some flexibility. This would 
ease  the  cooperation  between  competent  authorities  which  could  count  on  a  common 
understanding  of  how  sanctions  imposed  for  a  particular  violation  should  be  adapted  to  the 
specifics  of  that  violation.  At  the  same  time,  Member  States  would  have  the  possibility  to 
consider additional factors that are particularly relevant in a specific national context.  

This  option  would  help  in  ensuring  proportionality  of  sanctions:  the  sanctions  imposed  would 
always be linked to the benefits gained by the author of the violation and would therefore better 
reflect the negative consequences of the violation. Linking the level of a sanction to the financial 
strength of the author of the violation will ensure that sanctions are sufficiently dissuasive even 
for large financial institutions. 

EN 

31 

   EN 

Dissuasiveness  of  sanctions  will  also  be  increased:  when  pecuniary  sanctions  are  capable  to 
disgorge the profits derived from the violation and to significantly affect the financial situation 
of the author of infringements, illegal behaviours will be further discouraged.47 Similarly, more 
severe  sanctions  imposed  in  case  of  recurrent  violations  would  discourage  the  repetition  of 
illegal  behaviours.  Increased  dissuasiveness  would  reduce  risks  of  violations  of  EU  law  and 
therefore benefit consumer protection, competition, safety and integrity of financial markets.  

Furthermore, taking into account the cooperative behaviour of the author of the violation would 
help  in  discovering  other  persons  possibly  responsible  for  the  same  violation,  in  assessing  the 
consequences  of  that  violation  and  also  in  detecting  other  violations.  This  would  therefore 
contribute to better detection of violations, which would be beneficial for all players in financial 
markets: the users of financial services would be better protected; competition between financial 
institutions  would  less  be  distorted  by  unfair  conducts,  market  integrity  and  safety  would  be 
better safeguarded.  

This  option  would  not  require  major  changes  in  national  legislation.  Some  Member  States 
already  provide  for  the  key  factors  mentioned  above  and  the  others  could  add  those  factors 
without repealing the existing provisions. For example, on the basis of the information available 
from the Committees of Supervisors, in the market abuse sector, 8 Member States already take 
into account the benefit derived from a violation, while the remaining Member States could add 
that  factor  to  existing  provision.  In  the  banking  sector,  13  Member  States  already  take  into 
account  the  financial  strength  of  the  author  of  an  infringement,  while  the  remaining  Member 
States  would  have  to  add  that  factor  to  existing  provisions.48  Therefore,  compliance  costs  for 
Member States are expected to be limited.  

•  Policy option 3: list of exhaustive and identical factors taken into account by all national 

authorities 

This option would eliminate any divergence on factors to be taken into account in deciding the 
type  of  sanctions  and/or  calculating  the  amount  of  the  fine  to  be  applied  to  the  author  of  a 
specific violation. Uniformity in the way sanctions are applied would facilitate the cooperation 
between competent authorities and therefore ensure better cross border supervision. 

As  far  as  the  uniform  list  of  factors  includes  those  mentioned  in  option  2,  the  impacts  of 
providing for a uniform application of those factors would be the same than in option 2, in terms 
of proportionality and dissuasiveness of sanctions and better detection of infringements. 

However, the list would in principle include only factors that can be applied in the same way in 
all national legal systems, which would preclude the possibility to take also into account those 
factors which can be part of the fundamental principles of some legal systems but not relevant in 
others.  

Finally, this option would require changes in all national legislations, as it implies a revision of 
all  provisions  concerning  the  way  sanctions  are  applied.  Important  investments  in  terms  of 
resources and therefore significant compliance costs are therefore expected.  

Comparison of options 

47 
48 

See references quoted above (Footnote 22) 
CEBS report, p. 53, and responses by national authorities); CESR MAD report, excerpts from the replies of 
national authorities 

EN 

32 

   EN 

                                                 
Option  1  would  preserve  the  "status  quo"  and  therefore  would  not  contribute  to  achieve  the 
objectives of approximating and reinforcing sanctioning regimes.  

Option  3  would  be  the  most  effective  in  terms  of  facilitating  cooperation  between  competent 
authorities, as it would introduce a uniform list of factors to be taken into account by all of them. 
Option 2 would be less effective in this regard but it would allow the authorities to consider also 
other factors specifically linked to the national legal system where they operate. Options 3 and 2 
are considered to be equally effective in terms of ensuring proportionality and dissuasiveness of 
sanctions and facilitating detection of violations, given that the key factors identified in Option 2 
are also included in the list of factors established under Option 3. 

However, Option 2 is clearly more efficient than option 3 as it requires less changes in national 
legislations and therefore lower compliance costs.  

Effectiveness in achieving the objectives below 

Improve  dissuasiveness 
of sanctions 

Develop 
playing field 

level 

Improve 
between supervisors 

trust 

Efficiency 
achieving 
objectives 

in 
all 

1. Do nothing 

2:  some  key  factors  to  be  taken  into  account 
by all authorities 

3: list of exhaustive and identical factors to be 
taken into account by all national authorities 

0 

√ 

√ 

ISSUE 4: criminal sanctions  

0 

√ 

√ √ 

0 

√ 

√ √ 

0 

√ √ 

√ 

This issue concerns the application of criminal sanctions to violations of EU financial services 
legislation.  Such  sanctions  may  include  fines,  custodial  measures  such  as  imprisonment,  and 
complementary sanctions such as confiscation and disqualification. The options relating to this 
issue  can  be  combined  with  all  the  policy  options  identified  for  the  issues  concerning 
administrative sanctions. The option of introducing uniform rules on criminal sanctions has not 
been considered as it would not be legally viable49. 

Options 

Description 

1: no EU action 

Some Member States would continue to apply criminal fines and/or custodial penalties to 
certain violations of EU financial services legislations while other Member States would 
apply administrative sanctions only.  

While a large majority of Member States currently provide for criminal sanctions in case 
of market abuse or market manipulation, the range of the other violations for which such 
sanctions are envisaged would remain divergent across EU. 

2:  introduction  of 
criminal  sanctions 
for 
the  most 
serious violations 

EU action to identify, for each directive, conducts which are seriously detrimental to the 
interests  that  EU  Directives  in  the  financial  sector  aim  to  promote  (financial  market 
integrity,  competition  and  consumer  protection),  for  which 
the  application  of 
administrative  sanctions  does  not  prove  sufficient.  EU  action  would  require  Member 
States  to  ensure  that  these  infringements  are  regarded  as  criminal  offences  when 
committed with intent or by serious negligence.  

49 

Article 83 TFEU provides a legal basis provides a legal basis only for the establishment of minimum rules 
concerning  the  definition  of  criminal  offences  and  sanctions  under  certain  conditions,  not  for  full 
harmonisation of criminal sanctions. 

EN 

33 

   EN 

 
                                                 
Member  States  remain  responsible  for  defining  the  constituent  elements  of  various 
criminal  offences  and  designing  the  penalty  provisions.  However,  with  regard  to  certain 
specific criminal offences, they could be required to ensure that the maximum level of the 
sanctions provided for by their laws would not be below a certain minimum provided for 
in an EU measure. 

•  Policy option 1: no EU action  

In  the  absence  of  any  action  at  EU  level,  it  is  unlikely  that  Member  States  would  revise  their 
criminal laws in order to achieve further convergence in that area. Certain Member States would 
continue to provide for criminal sanctions for certain violations of financial services legislation, 
while others would provide for administrative sanctions. Among the first group, the definition of 
the  criminal  offences  would  differ  from  one  Member  State  to  the  other.  Therefore  there  will 
continue to be divergences. 

•  Policy option 2: introduction of criminal sanctions for the most serious violations  

Criminal sanctions consistently applicable to the most serious violation of EU financial services 
law  would  send  out  a  strong  message  of  disapproval  that  could  increase  dissuasiveness  of 
sanctions  and  have  a  positive  impact  on  the  public  perception  of  the  appropriateness  of 
sanctions: consumer confidence would increase if they would feel that the authors of violations 
incur criminal penalties (stigmatisation effect). 

The information collected in the Member States shows that despite the lack of the obligation to 
provide  for  criminal  offences  in  view  of  the  transposition  of  certain  directives  in  question  the 
Member  States  opted  for  such  a  solution  in  several  areas.  For  example,  in  case  of  market 
manipulation  prohibited  under  the  Market  Abuse  Directive,  only  three  Member  States  do  not 
provide  for  criminal  fines,  and  three  further  Member  States  do  not  provide  for  any  criminal 
sanctions.50 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  criminal  fines  in  only  eight  Member  States  and  by 
imprisonment in only seven Member States. 51 

Not all violations would be subject to criminal penalties but only the most serious ones indicated 
by the needs of the policy in question. Criminal sanctions would only be provided for in areas 
where  they  are  the  most  efficient,  effective,  and  dissuasive  tool  to  achieve  the  proper 
enforcement  of  EU  financial  services  rules.  Other  violations  would  continue  to  attract 
administrative sanctions.  

The nature of criminal law, its sensitivity not only for fundamental rights, and its link to Member 
States' sovereignty require that criminal offences would be provided for only in areas where this 
is necessary as an ultima ratio. The necessity test would have to be carried out strictly.  

Comparison of options 

Option 1 would not contribute to resolve the problems identified in section 3.2., as it preserves 
the "status quo".  

50 
51 

Source: CESR MAD report, excerpts from the replies of national authorities 
Source: CESR Mifid report, p. 186, 194. 

EN 

34 

   EN 

                                                 
Option  2  would  be  effective  in  terms  of  increasing  dissuasiveness  of  sanctions  and  consumer 
confidence in terms of level and type of sanctions, especially in relation to imprisonment and so-
called  additional  measures  (pecuniary  sanctions  seem  to  give  a  comparable  effect  when 
concerned by both systems). Option 2 has the advantage of providing the stigmatisation effect. 

The  level  of  the  resources/costs  required  for  the  modification  of  national  criminal  laws  will 
probably be relatively high but those costs will be diminished by the fact that the Member States 
already  consider  some  of  the  violations  as  criminal  despite  the  lack  of  the  general  obligation 
stemming  from  the  EU  law.  This  aspect  would  be  also  taken  into  account  when  assessing  the 
necessity of the introduction of the criminal law measures. 

Effectiveness in achieving the objectives below 

Efficiency  in  achieving 
all objectives 

Improve  dissuasiveness 
of sanctions 

Develop 
playing field 

level 

Improve  trust  between 
supervisors 

1. Do nothing 

2.  application  of  criminal  sanctions  to 
the most serious violations 

0 

√ 

0 

√ 

0 

√ 

0 

√ 

ISSUE 5 EU action to support effective application of sanctions 

This  issue  concerns  the  mechanisms  that  Member  States  may  put  in  place  to  improve  the 
application  of  sanctions,  and  particularly  detection  of  violations  of  EU  financial  services 
legislation. 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 occur. Therefore, the policy options concerning this issue should ideally be combined 
with those concerning the other issues mentioned above. 

The  application  of  sanctions  for  violations  of  EU  financial  services  legislation  is  the 
responsibility  of  national  authorities.  It  has  to  be  noted  that insufficient  detection  of  violations 
might be due to a number of reasons, such as lack of human and financial resources devoted to 
the  activities  of  national  supervisory  authorities  or  lack  of  appropriate  training  of  persons 
carrying out investigations. Moreover, insufficient application of sanctions might be the result of 
the difficulty to prove certain violations of financial services rules, the strict rules on burden of 
proof, and possibly the lack of specific expertise in the field of financial services of the national 
authorities  responsible  for  the  application  of  sanctions.  However,  these  potential  problems  are 
mainly related to the organisation and functioning of national administration and data are lacking 
on  their  actual  relevance.  Therefore,  EU  action  envisaged  in  this  field  will  not  address  these 
potential problems, which could be better addressed at national level. Nevertheless, the EU can 
take  action  to  ensure  that  (1)  all  national  authorities  have  the  necessary  key  powers  and 
investigatory  tools,  and  (2)  national  authorities  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  ("whistleblowing"),  and  at  encouraging  persons  who  are  responsible  of  potential 
violations, to report those violations to the competent authorities.  

Cooperation  between  competent  authorities  of  different  Member  States  and  the  cooperation 
between  those  authorities  and  the  new  European  Supervisory  authorities  could  be  further 
strengthened for the purpose of detecting violations and imposing appropriate sanctions. 

EN 

35 

   EN 

 
Options 

Description 

1: Coordination by ESAs - 
no additional EU action 

No action in relation to consistent and predictable programs to protect whistleblowers 
and  to  exempt  them  from  sanctions  when  they  are  involved  in  the  infringement 
("leniency programs"). 

National authorities cooperate on the basis of the provisions concerning the exchange 
of  information  and  the  mutual  assistance  in  investigations  in  the  EU  Directives 
applicable in the financial sector. 

New European Supervisory Authorities can use their powers to carry out peer reviews 
and  collect  information  on  sanctions  to  promote  exchange  of  information  and  best 
practices between Member States.  

2:  additional  EU  action  to 
ensure  all  Member  States 
provide 
key 
investigatory  powers  and 
tools,  

for 

Consistent measures taken by all Member States to protect persons (e.g. employees of 
financial  institutions)  who  denounce  potential  violations  of  financial  services 
legislation  committed  by  other  persons,  and  providing  for  reduction  of  sanctions 
applicable to the persons who confess their involvement in a violation.  

•  Policy option 1: no EU action 

Under this option, certain Member States would continue to provide for rules obliging financial 
institutions  to  put  in  place  early  warning  systems  for  malfunctions  in  the  internal  control 
mechanisms  and  prohibiting  retaliation  against  whistleblowers.  However,  the  large  majority  of 
them  would  probably  not  put  in  place  consistent  and  predictable  programs  to  protect 
whistleblowers and to exempt them from sanctions when they are involved in the infringement 
("leniency programs"). 

Competent authorities would continue to  cooperate with  each  other making use of the existing 
mechanisms.  They  would  render  assistance  to  competent  authorities  of  other  Member  States, 
particularly  by  exchanging  information  and  cooperating  in  investigation  activities.  Under  this 
option, it is expected that the role played by the new ESAs would further facilitate cooperation 
between  competent  authorities,  which  would  help  in  ensuring  more  consistent  application  of 
sanctions  and  more  efficient  supervisory  activities.  In  particular,  mechanisms  for  ensuring 
agreement and co-ordination between national supervisors of the same cross-border institution or 
in colleges of supervisors will be introduced, and the ESAs will 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.  

Better  detection  of  infringements  and  more  consistent  application  of  sanctions  would  increase 
their dissuasiveness, to the benefit of the overall functioning of financial markets and the users of 
financial services. 

•  Policy  option  2:  additional  EU  action  to  ensure  all  Member  States  provide  for  key 

investigatory powers and tools 

Under this option, Member States would count on additional instruments to detect violations of 
EU  law,  and  particularly  on  the  assistance  of  persons  involved  in  illegal  conducts  or  aware  of 
wrongdoings  from  third  parties.  When  violations  are  regularly  detected  and  punished, 
dissuasiveness and effectiveness of sanctions would be increased. As explained in the analysis of 
the previous issues, this could reduce violations of EU rules and would therefore be beneficial to 
consumers' protection, competition, safety and integrity of financial markets. The perception that 

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the authors of infringements are usually discovered and effectively punished would also restore 
confidence in the financial sector.  

Comparison of options  

Under option 1, the objective of reinforcing national sanctioning regimes could be achieved to a 
certain extent through the coordination activity that the new ESAs are already entitled to carry 
out.  Option  2,  while  including  the  activities  of  the  new  ESAs,  would  be  nevertheless  more 
effective  in  terms  of  better  and  more  consistent  enforcement  of  sanctions,  as  new  forms  of 
cooperation would be developed and new instruments would be available to detect violations. 

As to their efficiency, Option 1 would probably require additional administrative activities to be 
carried  out  by  the  competent  authorities  (e.g.  collecting  information  and  providing  them  to 
ESAs), but they are unlikely to bring about important investments in terms of costs or resources, 
as  Member  States  could  use  the  existing  administrative  structures.  Option  2  would  require,  in 
addition, actions to put in place whistleblowing mechanisms and leniency programs from those 
Member States which currently don't provide for them: national legal frameworks would have to 
be  supplemented  and  adapted  but  should  not  require  major  changes.  Whistleblowing 
mechanisms could also require some organisational measures to be taken by financial institutions 
(e.g. on internal reporting of misconducts and confidentiality of whistleblowers identity)  

Effectiveness in achieving the objectives below 

Improve 
dissuasiveness 
sanctions 

Develop 
playing field 

level 

of 

trust 

Improve 
between 
supervisors 

Efficiency 
achieving 
objectives 

in 
all 

√ 

√√ 

√ 

√√ 

√ 

√√ 

√ 

√ √ 

1. Coordination by ESAs - no additional EU action  

2.  additional  EU  action  to  reinforce  mechanisms 
facilitating  detection  of  violations/application  of 
sanctions 

5.1.1.  Preferred policy options 

In  the  light  of  the  comparative  analysis  carried  out  in  section  5.1,  the  following  options 
concerning the content of the measures have been selected for the five issues addressed:  

•  ISSUE  1:  policy  option  2  -  introducing  minimum  common  criteria  on  type  and  level  of 

administrative sanctions 

•  ISSUE 2: policy option 2 - sanctions applicable to both natural and legal persons 

•  ISSUE 3: policy option 2 - some key factors taken into account by all national authorities.  

•  ISSUE  4:  policy  option  2  -  introduction  of  criminal  sanctions  for  the  most  serious 

violations. 

•  ISSUE  5:  policy  option  2  -  reinforcement  of  mechanisms  facilitating  detection  of 

infringements/enforcement sanctions. 

5.1.2.  Cumulative impacts of the preferred options  

The impacts of the preferred options will be further reinforced by the cumulative nature of the 
action taken, as convergence on all of those issues together will ensure national authorities have 

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at their disposal a broad range of sanctioning powers that enable them to apply, in each specific 
case,  the  sanctions  that  are  the  most  appropriate  in  terms  of  effectiveness,  proportionality,  and 
dissuasiveness.  The  cumulative  action  will  therefore  increase  the  positive  effect  on  financial 
institutions, users of financial services, and on public authorities in charge of the application of 
sanctions. 

As the expected consequence of the preferred policy options is to improve the application of EU 
rules, the specific impacts of those options on stakeholders are in fact the same as the impacts of 
those rules themselves, which have been identified and assessed in the impact assessments of the 
Commission proposals for those rules. 

Impact  on  SMEs:  the  preferred  policy  options  are  not  expected  to  have  specific  impacts  on 
SMEs.  More  efficient  sanctioning  regimes  ensuring  better  compliance  with  EU  law  would 
benefit to all players in financial markets, as well as all users of financial services, including in 
both cases SMEs. 

Simplification  and  Administrative  burden:  the  preferred  policy  options  will  not  create    an 
administrative  burden  on  financial  institutions,  or  non-financial  companies,  which  are  already 
today  subject  to  sanctioning  regimes  in  all  Member  States.  More  uniform  sanctioning  regimes 
throughout the EU may in fact lead to reduced compliance costs for market participants through 
the simplification of the legal framework for cross-border financial institutions.Social impacts: 
the  preferred  policy  options  will  have  a  positive  impact  on  overall  consumer  protection  and 
confidence.  They  will  also  have  a  positive  impact  on  employees  and  society  at  large,  to  the 
extent that they reduce the risk of financial instabilities caused by violations of EU law, which – 
as  the  financial  crisis  in  2007/2008  has  shown  –  can  have  a  strong  negative  impact  on  the 
economy at large and on employment.  

Environmental impacts: none foreseen. 

Third  country  impacts:  The  reinforced  focus  on  effective,  proportionate  and  dissuasive 
sanctioning regimes is compatible with the common objectives of major jurisdictions within the 
G20 Group to strengthen the regulation and supervision of the financial sector. It is in line with 
developments in other jurisdictions. For example, the US has recently adopted rules to reinforce 
the  detection  of  violations  in  the  framework  of  the  Dodd-Frank-Bill  of  July  2010.  Moreover, 
several sanctions applied by US regulators in the aftermath of the financial crisis express a level 
of  concern  to  ensure  sufficient  deterrence  that  is  without  doubt  equivalent  to  the  suggestions 
made in this Communication.  

Impact  on  EU  competitiveness:  the  preferred  policy  options  are  expected  to  have  a  positive 
impact  on  the  EU's  competitiveness.  A  strong  and  credible  enforcement  of  financial  services 
rules contributes to the stability of the EU financial sector, with positive effects on it. Moreover, 
it  contributes  to  strengthening  the  EU,  in  competition  with  other  jurisdictions,  as  a  centre  for 
reliable  and  stable  financial  services  industries,  benefiting  from  a  high  level  of  confidence  by 
investors and consumers. 

5.1.3. 

Impact on EU budget: 

The  policy  options  selected  in  section  5.1.1  do  not  have  any  implication  for  the  budget  of  the 
European  Union.  Revision  of  sanctioning  regimes  would  be  primarily  managed  by  national 
authorities. 

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5.2. 

Options relating to the nature of the measures 

This  section  assesses  the  policy  instruments  that  may  be  used  to  implement  the  policy  options 
selected  in  section  5.1.1.  The  following  options  therefore  deal  with  the  nature  of  the  measures 
that may be taken to this end.  

The options have been assessed against the baseline scenario (see section 3.2.2), and compared 
in  terms  of  efficiency  and  effectiveness,  to  identify  the  most  appropriate  instrument  for  the 
implementation of the set of preferred measures concerning the issues to be addressed.  

•  Policy option 1: non binding measures facilitating approximation of sanctioning regimes  

This non-regulatory option would consist of EU initiatives aimed at: 

–  raising Member States awareness on the problems relating to the inefficiency and divergence 

of national sanctioning regimes;  

–  promoting cooperation and exchange of good practices between Member States; 

–  providing  guidance/issuing  recommendations  on  key  issues  such  as  type  and  level  of 
sanctions,  addressees  of  sanctions,  criteria  to  be  taken  into  account  in  the  application  of 
sanctions, introduction of criminal sanctions for the most serious violations.  

Within  this  option,  the  Commission  would  help  Member  States  in  identifying  failures  in  their 
national  legislation  and  suggest  measures  they  may  take  on  a  voluntary  basis  on  how  to 
strengthen national sanctioning regimes in a consistent manner.  

Member States would not be obliged to make any change in national legislations but they would 
revise the existing sanctioning regime only if, and to the extent, they consider it appropriate. As 
to its effectiveness, this option would provide Member States with a general common framework 
on how to deal with all issues. In particular, this would support the actions they would be willing 
to take in order to approximate the type and level of administrative sanctions, the personal scope 
of  them  and  the  factors  to  be  taken  in  the  application  of  sanctions,  as  well  as  to  introduce 
criminal  sanctions  and  to  reinforce  the  mechanisms  facilitating  detection  of  infringements. 
However, in the absence of any obligation, it would not be ensured that all Member States take 
all measures required. Moreover, the relevant issues would be probably dealt with differently by 
each Member State.  

•  Policy option 2: minimum approximation of sanctioning regimes - sectoral approach 

This  option  would  involve  legislative  action  at  Community  level  to  set  common  minimum 
standards in the directives concerned on some key issues of sanctioning regimes. 

Such  standards  would  concern  primarily  administrative  sanctions  and  would  be  adapted  to  the 
specifics  of  the  different  EU  Directives.  The  introduction  of  criminal  sanctions  for  the  most 
serious  violations  could  be  envisaged  where  this  would  prove  necessary  to  ensure  effective 
application of EU law.  

This would imply that new provisions on the issues 1, 2, 3, 4 and 5, would be introduced in the 
sectoral directives to the extent that problems have been identified in relation to those directives.  

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This  option  appear  to  be  very  effective  in  addressing  the  above  mentioned  issues:  targeted 
provisions  in  sectoral  directives  would  permit  to  set  common  standards  on  types  and  level  of 
sanctions,  addressees  of  sanctions  and  factors  to  be  taken  into  account  in  the  application  of 
sanctions,  which  are  the  most  appropriate  in  the  specific  sector,  and  for  the  specific  directive 
concerned. Under this option, an obligation to provide for criminal offences could be introduced 
if and when necessary, depending on the characteristics of the sector concerned.  

As  to  the  issue  5,  this  option  would  permit  to  introduce  targeted  common  rules  on 
whistleblowing and on the cooperation with ESAs (eg. in some areas ESAs could be entrusted 
with a role of mediator). Rules on the cooperation between competent authorities could also be 
reinforced where the ones already provided for in the directive concerned do not prove sufficient.  

Under  this  option,  Member  States  would  still  enjoy  a  significant  discretion  in  the  choice  and 
application of sanctions. They would be obliged to ensure compliance with some minimum EU 
standards but would be allowed to provide for more stringent rules. Therefore, this option would 
not necessarily require important changes in national sanctioning regimes. 

•  Policy  option  3:  minimum  approximation  of  sanctioning  regimes  –  cross-sectoral 

approach 

This  option  would  require  a  general  legal  framework  at  EU  level  applicable  across  sectors 
(banking, insurance, securities). 

The  European  legislator  would  specify  the  general  principles  to  be  taken  into  account  in 
designing sanctioning regimes in the financial services sector. Existing general clauses such as 
those  requiring  that  sanctions  are  effective,  proportionate  and  dissuasive  will  be  explained  and 
detailed, in order to clarify their meaning.  

This option would allow for the implementation of the policy options selected for the issues 1,2, 
3 and 5, as Member States would be obliged to revise their sanctioning regimes in order to adapt 
them  to  the  general  principles  set  at  EU  level,  which  may  cover  the  issues  1,2,3  and  5.  A 
common framework would guarantee the overall coherence of the review of sanctioning regimes. 
This  option  would  not  address  the  issue  4,  as  a  cross  sectoral  approach  would  not  permit  to 
identify the most serious violations for which criminal sanctions are necessary.  

However,  as  EU  legislation  would  have  to  be  applicable  to  all  sectors,  it  could  cover  very 
general  issues  only.  Consequently,  Member  States  would  maintain  considerable  discretion  in 
implementing  the  common  rules  set  at  EU  level,  which  would  significantly  reduce  the 
effectiveness of this option.  

•  Policy option 4: full approximation of sanctioning regimes – sectoral approach 

In  this  option,  which  also  requires  EU  level  regulatory  action,  fully  harmonised  administrative 
sanctions  would  be  established  across  the  EU,  in  each  of  the  sectors  concerned.  Full 
approximation is in any case excluded for criminal sanctions, given that the European legislature 
has not the power to fully harmonise them but only to establish minimum rules. 

EU  legislation  would  set  out  detailed  rules  on  administrative  sanctions  applicable  to  different 
categories  of  infringements.  This  option  would  therefore  imply  a  complete  set  of  provisions 
regulating all elements of the sanctioning regime. 

Full  approximation  of  sanctioning  regimes  would 
the 
implementation  of  the  policy  measures  selected  for  the  issues  1  and  3,  which  exclude  the 

therefore  not  be  suitable  for 

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introduction of uniform rules on the type and the level of administrative sanctions and the factors 
to be taken into account in the application of sanctions.  

On  the  contrary  this  option  would  be  effective  in  dealing  with  issue  2,  as  it  would  ensure  that 
sanctions are always applicable to both natural and legal persons involved in the violation.  

As to issue 5, while full approximation would achieve the objective of reinforcing mechanisms 
facilitating  detection  of  the  violations,  it  would  probably  require  major  changes  in  national 
legislations and therefore significant investments in terms of resources and compliance costs for 
Member States. Moreover, if whistleblowing mechanisms and leniency programs are regulated 
in detail at EU level, Member States will not be allowed to adapt them to the specificities of their 
legal systems, which could affect the effectiveness of such mechanisms.  

5.2.1.  Preferred policy instruments 

Following  the  above  assessment  of  the  options  relating  to  the  nature  of  the  measures,  we 
consider  that  the  most  appropriate  to  address  the  issues  analysed  in  section  5.1  is  a  legislative 
action aiming at minimum approximation of national sanctioning regimes, covering potentially 
all  the  issues  concerned.  Legislative  action  would  ensure  that  Member  States  will  implement 
consistently the measures identified in section 5.1.1.  

The  most  effective  approach  is  considered  to  be  the  sectoral  approach  under  option  2,  which 
would  permit  to  introduce  precise  provisions  covering  all  the  issues  to  be  addressed  (type  and 
level of sanctions, addressees of sanctions, factors to be taken into account for the application of 
sanctions and mechanisms facilitating detection of the violations, and possibly the introduction 
of  criminal  sanctions  for  the  most  important  violations).  This  option  could  be  combined  with 
option 3 by establishing some basic principles common to all sectors, which would guarantee the 
overall coherence of any EU action in this field. 

6. 

MONITORING AND EVALUATION 

This Impact assessment provides evidence supporting the need for EU action based on minimum 
harmonization of sanctioning regimes ensuring compliance with certain common standards. 

The  policy  options  selected  will  be  presented  in  the  Commission  communication  in  order  to 
allow  all  the  stakeholders  concerned  to  comment  on  the  approach  proposed.  The  Commission 
will carefully evaluate the feedback received and take it into account when coming forward with 
firm proposals. The Commission will sum up the contributions received by the first half of 2011. 
The  Commission,  while drafting such proposals,  will monitor and update its assessment of the 
various policy options selected. A comprehensive monitoring and evaluation programme, based 
on appropriate indicators, can only be developed once detailed proposals have been made. 

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List of the main Directives concerned 

ANNEX 1 

•  Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating 
to  the  taking  up  and  pursuit  of  the  business  of  credit  institutions  ("Capital  Requirements 
Directive") OJ L302 17.11.09;  

•  Directive  2004/39/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on 

markets in financial instruments ("MiFID Directive"), OJ L145 30.04.2004;  

•  Directive  2003/6/EC  of  the  European  Parliament  and  of  the  Council  of  28  January  2003  on 
insider  dealing  and  market  manipulation  ("Market  Abuse  Directive"  or  "MAD"),  OJ  L096 
12.04.2003;  

•  Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 
on  the  taking-up  and  pursuit  of  the  business  of  Insurance  and  Reinsurance  ("Solvency  II 
Directive) OJ L335 17.12.2009;  

•  Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on 
the prospectus to be published when securities are offered to the public or admitted to trading 
("Prospectus Directive") OJ L345 31.12.2003;  

•  Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on 

Insurance Mediation, OJ L009 15.01.2003;  

•  Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on 
the  prevention  of  the  use  of  the  financial  system  for  the  purpose  of  money  laundering  and 
terrorist financing ("Anti-Money Laundering Directive"),OJ L309 25.11.2005;  

•  Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the 
coordination  of  laws,  regulations  and  administrative  provisions  relating  to  undertakings  for 
collective investment in transferable securities ("UCITS Directive"),OJ L302 17.11.2009. 

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Chart 1: EU contribution to world financial activity in % (2008/20009) 

ANNEX II 

%

100

90
80
70

60
50

40
30

20
10

0

27

10

13

50

15

16

32

38

15

10
10

36

25

15

12

35

35

Others
India
China
Japan
US
EU

Bank Assets

Insurance
Premiums

Stock Market
Capitalisation

Debt Securities

Source: European Commission, European Financial Integration Report 2008 (2009) 

Chart 2 - Market share of foreign-owned banks (% of total assets) 

100

90

80

70

60

50

40

30

20

10

0

EE CZ LU SK RO BG LT PL LV FI

HU UK IE GR MT CY SI

EU-25 BE PT DK AT

EMU-12 NL IT ES DE FR SE

Source: European Commission, European Financial Integration Report 2008 (2009) 

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