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EU Market Abuse Regulation: The Puzzle of Enforcement

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Abstract

Aimed at establishing an effective and consistent enforcement of market abuse regulation, the regime introduced by Regulation (EU) No. 596/2014 (‘MAR’) and Directive 2014/57/EU (‘MAD II’) relies on a mix of criminal penalties and administrative sanctions, both of which are subject to the principles of double jeopardy and due process. In the light of a few cases decided by the Court of Justice of the European Union and the European Court of Human Rights (‘ECtHR’), the features of this regime are, however, unclear, and it is doubtful whether the current framework is adequate to achieve its goals. This article criticizes the decision to criminalize market abuse at the EU level and argues that a credible EU supervisory system is better served by an enforcement system based on administrative sanctions. Moreover, the article discusses the solution offered by the ECtHR to the trade-off between efficiency and fairness in administrative proceedings and proposes an allocation of prosecution and decision-making to independent bodies within the same supervisory authority as a means to better balance efficiency and fairness.

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Notes

  1. For a detailed introduction, Moloney (2014), pp 762–769; McVea (2015), pp 643–648.

  2. Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) [2003] OJ L 96/16.

  3. Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC [2014] OJ L 173/1.

  4. Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive) [2014] OJ L 173/179.

  5. [2012] OJ C 326/391.

  6. Öberg (2014), p 114 (offering a positive evaluation of the new enforcement regime); Faure and Leger (2015), p 387 (strongly criticizing the policy options adopted by MAD II).

  7. Grande Stevens et al. v. Italy, ECtHR, No. 18640/10, 4 March 2004 (‘Grande Stevens’). For a first comment on the decision, Ventoruzzo (2015), p 145; Gargantini (2015), p 149.

  8. Luchtman and Vervaele (2014), p 192 (focusing on the crucial lack of uniform cross-border enforcement); Herlin-Karnell (2012), p 488 (questioning, before the enactment of MAR and MAD II, whether dual regulation through criminal law sanctions and administrative sanctions breaches the principle of ne bis in idem).

  9. High Level Group on Financial Supervision in the EU (the de Larosière Group) (2009), p 23. A ‘lack of harmonisation of sanctioning powers between members’ was already identified by the Committee of European Securities Regulators (2006) and confirmed by the European Securities and Markets Authority (2012).

  10. European Commission (2010), p 4.

  11. Öberg (2014) (discussing why a Directive introducing the sanction of imprisonment is both effective and essential for the implementation of EU financial markets regulation); Moloney (2014), p 766 [noting that ‘the crisis era (and in particular the Libor scandal) created supportive political conditions for criminalizing market abuse’].

  12. MAR Proposal, recital 39; MAR, recital 77; MAD II Proposal, recital 18; MAD, recital 27.

  13. Explanations relating to the Charter of Fundamental Rights (2007/C 303702), on Art. 52: ‘The meaning and the scope of the guaranteed rights are determined not only by the text of those instruments, but also by the case law of the European Court of Human Rights and by the Court of Justice of the European Union’; Lock (2015), pp 184–185.

  14. CJEU, Case C-45/08, Spector Photo Group, ECLI:EU:C:2009:806, para. 42.

  15. Grande Stevens, supra n. 7, paras. 94–101.

  16. Engel and Others v. the Netherlands, ECtHR, Nos. 5100/71; 5101/71; 5102/71; 5354/72; 5370/72, 8 June 1976; Schabas (2015), pp 277–278; Bernatt (2016a), pp 16–17. More recently the same approach was followed by the CJEU in interpreting Art. 50 CFREU: see CJEU, Case C-489/10, Bonda, ECLI:EU:C:2012:319, para. 37; CJEU, Case C-617/10, Fransson, ECLI:EU:C:2013:280, para. 35.

  17. A and B v. Norway, ECtHR, Nos. 24130/11 and 29758/11, 15 November 2016, especially paras. 130 and 121.

  18. In a tax case, CJEU, Case C-617/10, Fransson, ECLI:EU:C:2013:280, para. 34. For a critical evaluation, Lock (2018), pp 12–13.

  19. CJEU, Case C- 617/10, Fransson, ECLI:EU:C:2013:280, para. 34.

  20. CJEU, Cases C-596/16 and 597/16, Di Puma, ECLI:EU:C:2018:192, especially paras. 44 and 45.

  21. CJEU, Case C-537/16, Garlsson, ECLI:EU:C:2018:193, especially paras. 61 and 63.

  22. According to recital 11, ‘Insider dealing and unlawful disclosure of inside information should be deemed to be serious in cases such as those where the impact on the integrity of the market, the actual or potential profit derived or loss avoided, the level of damage caused to the market, or the overall value of the financial instruments traded is high. Other circumstances that might be taken into account are, for instance, where an offence has been committed within the framework of a criminal organisation or where the person has committed such an offence before’. Similarly, under recital 12, ‘market manipulation should be deemed to be serious in cases such as those where the impact on the integrity of the market, the actual or potential profit derived or loss avoided, the level of damage caused to the market, the level of alteration of the value of the financial instrument or spot commodity contract, or the amount of funds originally used is high or where the manipulation is committed by a person employed or working in the financial sector or in a supervisory or regulatory authority’.

  23. With reference to the Italian draft of the act implementing MAD II, Viganò (2016), p 197.

  24. European Securities and Markets Authority (2012), p 5.

  25. European Commission (2011), p 32.

  26. Moloney (2014), p 762.

  27. For a radical critique of this assumption, see Faure and Leger (2015), pp 415–416 (noting that the ‘insider trading law seems not to be a big issue in any of the Member States’).

  28. European Securities and Markets Authority (2012), p 9.

  29. Regulation (EU) No. 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No. 716/2009/EC and repealing Commission Decision 2009/77/EC [2010] OJ L 331/84.

  30. With reference to EU competition law, Nazzini (2012), pp 1001–1002; Bailey (2004), pp. 1335 et seq.; in the United States, Eskridge and Baer (2008), p 1173; more generally, Daly (2012), pp 72 et seq.

  31. Ottow (2015), pp 128–130; Harlow and Rawlings (2014), pp 216–217; Bernatt (2016a), pp 7–13; Lianos and Andreangeli (2013), pp 406–418; Nazzini (2012), pp 996 et seq.; Forrester (2009), pp 817, 836 et seq; Slater, Thomas and Waelbroeck (2009), p 97.

  32. Ottow (2015), p 125; OECD (2005), p 62 (noting that an ‘integrated enforcement process, though efficient, has inherent weaknesses. Combining the functions of investigation and decision in a single institution can save costs but can also dampen internal critique’).

  33. Slater, Thomas and Waelbroeck (2009), p 129; Wils (2004), pp 212–220; Waelbroeck and Fosselard (1995), p 111; along the same lines Gerardin and Petit (2012), p 21.

  34. Grande Stevens, supra n. 7, at para. 137 (noting that ‘the Insider Trading Office [which investigated the case], the Directorate [which proposed the sanction] and the Commission [which imposed the penalty] are merely branches of the same administrative body, acting under the authority and supervision of a single chairman’).

  35. Grande Stevens, supra n. 7, at para. 123.

  36. Gradinger v. Austria, ECtHR, No. 15963/90, 23 October 1995, paras. 34, 37 and 42; Menarini Diagnostics SRL v. Italy, ECtHR, No. 43509/08, 27 September 2011 (‘Menarini’), para. 58; Bernatt (2016b), p 297.

  37. Grande Stevens, supra n. 7, at para. 137.

  38. Grande Stevens, supra n. 7, at para. 161.

  39. Grande Stevens, supra n. 7, at paras. 148–155.

  40. Goisis (2015), p 556; Allena (2014), pp 18–19.

  41. Eskridge and Ferejohn (2002), p 630.

  42. OECD (2005), p 62.

  43. Grande Stevens, Dissenting opinion of Judges Karakaş and Pinto de Albuquerque, at para. 11. An analogous point is raised in the dissenting opinion of Judge Pinto de Albuquerque in Menarini, at para. 8.

  44. Davidson (2017), p 231; R (Willford) v. FSA [2013] EWCA Civ 677, para. 37 (Moore-Bick LJ).

  45. Bernatt (2016a), p 18; Bernatt (2016b), pp 294–299; similarly, Varju (2014), p 182 (noting that ‘although the general requirements on jurisdiction of the review court are formulated in rather bold terms in ECHR law, their detailed examination shows that they cover the review of facts and law only and do not apply to the review of discretion’).

  46. Bernatt (2016a), p 20.

  47. Bernatt (2016b), p 322.

  48. Botta and Svetlicinii (2014), p 125 (noting ‘the ambiguous requirement of full judicial review introduced by the ECtHR’).

  49. With reference to antitrust law a similar approach is adopted by Nazzini (2012), pp 999 et seq.; Bernatt (2014), pp 28–29; Zimmer (2014), pp 9 et seq.

  50. Gargantini (2015), p 156.

  51. Autorité des Marchés Financiers (2018) Commission des santions—Présentation.

  52. Financial Conduct Authority (2017), p 2.

  53. Andreangeli (2008), p 239.

  54. For an analogous point, Nazzini (2012), p 990.

  55. In France, for example, under Art. R. 621-45, Code monétaire et financier, administrative sanctions adjudicated by the Commission des sanctions are subject to judicial review by the Conseil d’Etat.

  56. For a similar conclusion with reference to the enforcement of antitrust law, Nazzini (2012), p 1005.

  57. Herlin-Karnell (2016), p 243.

  58. For a comparative analysis of institutional models of enforcement, Scholte and Ottow (2014), p 80.

  59. European Commission (2015), p 26.

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Acknowledgements

I am grateful to Giovanni Portioli, Eyal Zamir, an anonymous referee and the participants in the Private and Commercial Law Workshop at the Hebrew University for their insightful comments on an earlier draft. I also benefited from conversations with Kern Alexander, Lars Klöhn, Carlo Milia, and Carla Stamegna. Gregory Black and Viktor Berishaj provided excellent assistance. Errors remain my own.

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  1. Full Professor of Corporate Law and Securities Regulation, Università Cattolica del Sacro Cuore, Milan, Italy

    Andrea Perrone

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Perrone, A. EU Market Abuse Regulation: The Puzzle of Enforcement. Eur Bus Org Law Rev 21, 379–392 (2020). https://doi.org/10.1007/s40804-019-00171-x

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