German Regulator releases new Administrative Fine Guidelines

05 April 2017 Download PDF

Report contents:

  1. New WpHG Administrative Fine Guidelines: Very High Fines Possible
  2. Effective Sanctions Imposed on Major Enterprises
  3. WpHG Administrative Fine Guidelines Conducive to Equal Treatment
  4. Assessment of Fines in Two Stages
  5. Mitigating and Aggravating Circumstances
  6. Concrete Amounts Under the New Fine Guidelines
  7. Publication of Sanctions
  8. Prevention through Implementing Appropriate Compliance Structures
The German Financial Supervisory Authority (BaFin) recently published revised guidelines for breaches of the German Securities Trading Act (WpHG) (WpHG Administrative Fine Guidelines II (WpHG-Bußgeldleitlinien II)). They had been last updated in 2013.

According to the new WpHG Administrative Fine Guidelines, BaFin now can and will punish companies more severely for breaches of disclosure obligations resulting from the Securities Trading Act. Now, the fines can be significantly higher.

The possibility to impose stricter sanctions is based on changes in European law. For one thing, these include the Directive amending the Transparency Directive, which was implemented into German law in November 2015. The sanctions imposed under this Directive in the event of breaches of the shareholding and reporting disclosure obligations are significantly more severe. Secondly, this is based on the Market Abuse Regulation (MAR) and the Market Abuse Directive (CRIM-MAD) that came into force in July 2016 providing for stricter regulations against market manipulation and insider trading throughout the EU.

New WpHG Administrative Fine Guidelines: Very High Fines Possible

Violations of the new Market Abuse Regulation, for example, carry significantly higher sanctions. These include not satisfying or incorrectly satisfying the obligation to disclose important company news without undue delay (ad hoc publications) or to report directors' dealings.

In the event of violation, high fines and even turnover-related fines can be imposed. Depending on the violation, the fines may be up to EUR 5 million, for example, for insider trading conducted by individuals. For legal entities, the fine may even amount to up to EUR 15 million or 15 per cent of the group's turnover, whichever is higher.

For breaches of duty concerning financial reporting or the notification of changes to voting rights (voting rights notifications), BaFin can impose fines of up to EUR 10 million or 5 per cent of the group's annual turnover.

If, for example, a company generates turnover in the amount of EUR 50 million, the maximum fine for such breaches could theoretically be EUR 2.5 million. Under the previous laws, the fines were capped at EUR 200,000.

Effective Sanctions Imposed on Major Enterprises

BaFin Executive Director Elisabeth Roegele announced that, for large companies with high turnover and a strong market capitalization, BaFin will have to impose significantly higher fines for severe violations in the future.

By introducing turnover-related fines, the European lawmakers intended that effective sanctions can be imposed also on major companies in case of severe breaches. According to Roegele, BaFin is aware of the responsibility associated with the broader framework for turnover-related fines. For this reason, BaFin would act with sound judgement, particularly with regard to less severe violations. BaFin would impose fines in such individual cases that are far below the statutory maximum.

WpHG Administrative Fine Guidelines Conducive to Equal Treatment

The new administrative fine guidelines issued by the Federal Financial Supervisory Authority now set out the details on how the increased fines are actually applied and assessed. In this context, the guidelines are also conducive to equal treatment. They are meant to ensure that administrative offences that are essentially equivalent are similarly penalised.

The guidelines put the general wording of the provisions of the Securities Trading Act in concrete terms and specify the basic amounts depending on the severity and the market capitalisation of the affected company. BaFin uses these factors to set the individual fine in consideration of the mitigating or aggravating circumstances and the situation of the offender.

Assessment of Fines in Two Stages

When assessing the fines, BaFin will proceed in two stages in future:

In the first stage, the applicable framework for fines is identified on the basis of the relevant provisions of the Securities Trading Act.

This framework is determined either 

  • on the basis of the respective maximum amounts (e.g. up to €10 million for failure to issue voting rights notifications), or
  • on the basis of the turnover-related maximum amounts (e.g. 2 per cent of the most recent total turnover for breaches of the ad hoc notification obligation), or
  • on the basis of the maximum amounts relating to additional proceeds (e.g. three times the benefit resulting from the breach for breaches of the ad hoc  notification obligation).

In each case, the highest of the above amounts applies to the determination of the framework for fines.

The subsequent specific assessment (second stage) of the fine is then also carried out in three steps:

  • first, the base amount is identified by means of the circumstances of the offence;
  • in a second step, the identified amount is adjusted by means of criteria relating to the conduct of the offender, and
  • finally, the economic situation of the offender is taken into account.

When setting the fine, BaFin has also the option of siphoning off the financial benefit the offender gained from the offence. If there are mitigating or aggravating circumstances, the fine can be lower or higher than
the identified base amount.

Mitigating and Aggravating Circumstances

The following, inter alia, may have a mitigating effect:

  • negligent or reckless action,
  • confession,
  • cooperation in clarifying the facts,
  • promise to improve conduct or measures taken to this effect, or
  • a long duration of the procedure.

A repeat offence or the increased intransigence of the offender, for example, can result in a higher fine.

Concrete Amounts Under the New Fine Guidelines

In the second part of the guidelines, BaFin specifies the details for the fines based on specific amounts for the respective violations. In this respect, the companies are categorised based on their market capitalisation, and the circumstances of the offence are classified from "slight" to "medium" up to "extraordinarily severe". The base amounts used for the concrete determination of the fine are shown in tables.

Publication of Sanctions

The imposition of fines, however, is only one of the possible sanctions under the new European legal standards. As a deterrent and in addition to the described fines, violations of the new Market Abuse Act – such as failure to issue ad hoc notifications – may be punished by the so-called "naming and shaming".

This means that imposed administrative sanctions, for example decisions on fines, are published for at least five years on the BaFin website – naming the violation – even before the judgement has become final. Moreover, not only is the violation specified, but also the full name of the offender will be published.

For serious infringements, criminal law sanctions are also possible. An unlawful disclosure of insider information, for example, can be punished by imprisonment for up to five years or a financial penalty. In the area of market price manipulation, this can result in a prison sentence of up to ten years for a person acting commercially or professionally in performing work for a securities service provider or a stock exchange.

Prevention through Implementing Appropriate Compliance Structures

The specifications given by the new BaFin guidelines make the sanctions for violations more predictable. To avoid fines and penalties, companies falling under the scope of the new provisions should implement appropriate compliance structures and monitor them constantly. It is also necessary in practice to develop appropriate process descriptions and procedures and to train employees and executive staff on a continuous basis.

Show more Show less

Back to top

Agency Database

  • Financial Conduct Authority (FCA)
    Term:
    Financial Conduct Authority (FCA)
    Other Names:
    Definition:
    Responsible for consumer protection, market conduct, EU representation & prudential regulation of smaller firms.
    Area:
    Type:
    Regulator
    Country:
    UK
    URL:
    http://www.fsa.gov.uk/
  • Czech National Bank
    Term:
    Czech National Bank
    Other Names:
    Česká národní banka (CNB)
    Definition:
    Area:
    Financial Services
    Type:
    Regulator
    Country:
    Czech Republic
    URL:
    http://www.cnb.cz/en/
  • Financial Services and Markets Authority
    Term:
    Financial Services and Markets Authority
    Other Names:
    Autorité des services et marchés financiers (FSMA)
    Definition:
    Responsible for the integrity of financial markets and fair treatment of financial consumers. Competent authority for issues under MAD. It is the successor of the CBFA (www.cbfa.be) and is the competent authority for the authorisation and supervision of payment institutions; MiFID.
    Area:
    Financial Services
    Type:
    Regulator
    Country:
    Belgium
    URL:
    http://www.fsma.be/
  • Polish Financial Supervision Authority
    Term:
    Polish Financial Supervision Authority
    Other Names:
    Komisja Nadzoru Finansowego (KNF)
    Definition:
    Area:
    Financial Services
    Type:
    Regulator
    Country:
    Poland
    URL:
    http://www.knf.gov.pl/en/index.html
  • Austrian National Bank
    Term:
    Austrian National Bank
    Other Names:
    Oesterreichische Nationalbank (ONB/OeNB)
    Definition:
    Contributes on a stability-oriented monetary policy; safeguards financial sability; provides general public and the busines community with high quality cash. The competent authority for the authorisation and supervision of payment institutions (article 20).
    Area:
    Banking
    Type:
    Regulator
    Country:
    Austria
    URL:
    http://www.oenb.at/en/
  • Bank of Italy
    Term:
    Bank of Italy
    Other Names:
    Banca d’Italia
    Definition:
    Central bank: banking and financial supervision. The competent authority for the authorisation and supervision of payment institutions (article 20).
    Area:
    Banking
    Type:
    Regulator
    Country:
    Italy
    URL:
    http://www.bancaditalia.it/;internal&action=_setlanguage.action?LANGUAGE=en
  • Bank of Spain
    Term:
    Bank of Spain
    Other Names:
    Banco de Espana
    Definition:
    Central bank. The competent authority for the supervision of payment institutions (note the competent authority for the authorization of payment institutions is the Spanish Ministry of Finance).
    Area:
    Banking
    Type:
    Regulator
    Country:
    Spain
    URL:
    http://www.bde.es/bde/en/
  • Commission of the Securities Market
    Term:
    Commission of the Securities Market
    Other Names:
    Comissão do Mercado de Valores Mobiliários (CMVM)
    Definition:
    Established in April 1991 with the task of supervising and regulating securities and other financial instruments markets. The competent authority for MiFID.
    Area:
    Securities
    Type:
    Regulator
    Country:
    Portugal
    URL:
    http://www.cmvm.pt/en/Pages/default.aspx

Future Dates

* Estimated date

  • *Q1 or Q2

    ESMA to submit its final report and draft technical standards under the SFTR to the European Commission for endorsement in Q1/Q2 2017.

  • 7 September 2017

    Deadline for responses to FCA's CP17/19: MiFID II implementation – Consultation Paper VI.

  • 7 September 2017

    The PRA's rules on whistleblowers in non-EEA UK branches (PRA policy statement PS8/17) enter into force on this date.