EU bankers to face tougher sanctions, prison


Bankers could face higher fines and even prison sentences, according to a proposal tabled by the European Commission today (8 December).

The European Commission will try to beef up sanctions for misconduct in financial services after an investigation revealed that countries have weak and divergent rules on how to tackle financial crimes.

"The financial crisis has put in doubt whether financial market rules are always respected and applied as they should be across the Union," reads a 16-page paper setting out  the Commission's vision.

Criminal sanctions

"We are looking at the possible introduction of more criminal sanctions," a Commission source revealed.

The source went on to explain that the EU's Lisbon Treaty had laid the groundwork for "common minimum provisions of criminal sanctions".

The Commission was less enthusiastic to impose sanctions on supervisors, who are also guilty of failing to act when for example bankers like Paul Moore at HBOS – now Lloyds – tried to tell the British Financial Services Authority (FSA) of risks taken in the sub-prime mortgage market.

"We have to be careful. If supervisors are too easily liable, they may be afraid to step in when they need to," the Commission source explained.


The source revealed that in some countries no sanctions have been enforced for two years but refused to name and shame which countries these were.

An investigation by the Committee of European Securities Regulators (CESR) unveiled startling difference in the types of sanctions and fines available to regulators across the bloc.

In addition, fines for identical offences, like insider dealing or dodgy licenses, can vary from 100,000 to  one million euros across the bloc.

Britain's FSA points out that violations of banking legislation can lead to gains of several million euro, in excess of the maximum levels of fines in some member states.

Teeth first, legalese second

Observers have criticised the Commission for lumping more legalese on top of already existing rules, instead of addressing the heart of the problem: financial policemen with no teeth.

"Once there is a fully-functioning continent-wide legal force that is well integrated with each other and has good links across the EU, then tougher penalties might actually mean something," writes financialguy, a blogger on Blogactiv.

Regulating financial instruments

The EU's rules on sanctions come on the same day as a proposed review of an EU law to regulate financial instruments – the Markets in Financial Instruments Directive (MiFID).

The review aims to address the pitfalls of automated and high-frequency trading which could be sales based on rogue algorithms reacting to momentary market events.

The Commission proposes risk controls and filters to reduce the chance of crashes on their trading venues.

It also addresses so called dark pools, trading venues where sales are done anonymously and pre-trade prices are not given because of a regulatory waiver.

The Commission does not propose to reject these waivers but to examine whether they are necessary for all dark pools.

On 15 November 2008, the G8 countries signed a declaration which included measures to prevent illicit conduct and strengthen sanctions.

As a result, the EU's agencies for financial oversight, including the Committee of European Securities Regulators, conducted an investigation into sanction regimes across the bloc.

Meanwhile, the Markets in Financial Instruments Directive (MiFID), a cornerstone of the EU's Financial Services Action Plan, was proposed in November 2002 to update the existing Investment Services Directive (ISD) of 1993.

The law was designed to cope with, and to further enable, an increased number of cross-border investment transactions.

It aims to set a comprehensive regulatory regime, impose higher standards and include commodities derivatives. It therefore seeks to produce greater European harmonisation of laws and encourage capital market integration in the EU.


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