The European Commission has set the ball rolling for the introduction of radical reforms in the way business in financial services, including banks and trading, is conducted. The new proposals also include tougher sanctions, such as the possibility of prison terms for those responsible for breaking the rules.
The Commission said that the recent financial crisis has shown that financial market rules are not always respected and applied as they should be across the EU.
“Ensuring proper application of EU rules is first and foremost the task of national authorities, who have the responsibility to prevent financial institutions from violating EU rules, and to sanction violations within their jurisdiction. But national authorities need to act in a coordinated and integrated way,” the Commission said.
According to Brussels, the current sanctions provided for by member states diverge in key aspects such as the types of sanctions available and the level of fines.
The Commission wants to end these disparities and have a minimum standard of sanctions all over its 27 member states.
Launching a new consultation process which will lead to formal proposals next year, Internal Market Commissioner Michel Barnier said the problem was that current national penalties varied hugely across the EU – from just €150,000 to a few millions.
“We are dealing with something to do with whether people are respecting regulations, and if they are not, something needs to be done,” he said.
“We need good regulations which are respected, reinforced by harmonised penalties. There is a risk from financial institutions that do not respect the rules of the market place. Traders and those responsible must realise that they will be hit hard if there is malpractice,” he insisted.
The Commission said that it will be working hard at co-ordination in this area and although member states will still have some flexibility, there are good reasons for setting minimum sanctions on key issues in order to have a dissuasive effect.
Mr Barnier also unveiled plans to revise an important directive concerning financial market regulation, known as MiFID, in a bid to increase transparency of the market.
The Markets in Financial Instruments Directive, which came into force in November 2007, is an important pillar of European regulation of financial markets and although Brussels claims that it has increased competition and integration of European financial markets and improved protection of investors, a new review is needed to address all of the areas where shortcomings have been revealed.
“My objective is to ensure that the revision of MiFID will lead to a stronger regulatory framework, adapted to the new trends and players on financial markets,” Commissioner Barnier said.
The review is aimed at establishing a safer, sounder, more transparent, and more responsible financial system that works for the economy and society as a whole.
Among the review’s main objectives, the Commission cited the need to address rapid changes in both market structure and technology that could affect the smooth and efficient functioning of EU financial markets. The emergence of new organised trading facilities within banks and technological innovations, such as automated trading – including high-frequency trading – need also to be suitably accounted for in the new regulatory framework.
The EU executive said that specific measures are foreseen to improve oversight and transparency in commodity derivatives markets and comprehensive rules in MiFID concerning investor protection.
“This concerns, for example, requirements for the provision of investment advice to clients or information and protection needs of investors in relation to more complex instruments,” the EU executive said.