Library of Congress

Law Library of Congress

The Library of Congress > Law Library > News & Events > Global Legal Monitor

European Union: Stricter Penalties for Insider Trading Proposed by the Parliament

(Sept. 13, 2013) On September 10, 2013, the European Parliament endorsed a draft Regulation on Insider Dealing and Market Manipulation. 659 Members voted in favor, with 20 voting against and 28 abstentions. (Tougher Sanctions for Financial Markets Manipulation, EUROPEAN PARLIAMENT/NEWS (Sept. 9, 2013).)

The initial proposal, which was drafted in 2011 by the European Commission, was designed to replace Directive 2003/6/EC onInsider Dealing and Market Manipulation (Market Abuse),in an effort to restore investor confidence and protect market integrity, which had been affected by the global financial crisis. (Proposal for a Regulation of the European Parliament and of the Council on Insider Dealing and Market Manipulation (Market Abuse), COM(2011) 651 final, EUROPA (Oct. 20, 2011).)

The proposal has a broader scope than Directive 2003/6/EC and regulates a variety of financial instruments, including instruments that may be traded in a multilateral trading facility and other new types of organized trading facilities. It also reclassifies emission allowances as financial instruments to ensure that they fall within its scope. For this purpose, it introduces a specific definition of inside information for emission allowances. (Id.)

The Parliament approved rules to ensure that transmitting false or misleading information or providing false or misleading inputs that manipulate the calculation of a benchmark fall under market abuse rules in an effort to regulate future manipulation. (Tougher Sanctions for Financial Markets Manipulation, supra.) The motive behind the adoption of this rule was the scandal that erupted in 2012 involving Libor interbank lending rate-rigging, in which many employees of a number of large EU and foreign banks were implicated in false reporting of the interbank lending rate. (Assa Bennet, Libor Rate to Remain in London, Despite Rate-Rigging Scandal, HUFFINGTON POST, UK (Sept. 9, 2013); Kayleigh Lewis, New EU Market Abuse Regulation Will Close “Libor Loophole,” THE PARLIAMENT.COM(Sept. 10, 2013); Alan Barker, Libor Control to Remain in London, Financial Times (Sept. 11, 2013) (registration required).)

Initially, the proposal imposed on companies that violate its provisions administrative monetary sanctions of up to 10% of the company’s total annual turnover in the preceding business year. The Parliament adopted stricter sanctions of up to 15% of the company’s annual turnover or €15 million (about US$19,933,500). If the violator of trading rules is an individual, the Parliament approved sanctions of up to €5,000,000 euro (about US$6,653,500). In addition, it approved a temporary ban or, in some cases, a permanent ban on doing certain jobs within investment firms; this provision was initially proposed by the European Commission. (Tougher Sanctions for Financial Markets Manipulation, supra.)

Arlene McArthy, the Parliamentarian who served as rapporteur on the legislation, stated:

There is still much to do in restoring the trust and confidence in banks and the financial services industry. We must get the real economy moving again and make sure consumers are protected in the financial services sector. We are sending a clear signal that the EU is not a soft option or safe haven for perpetrators of market abuse. (Id.)