Crooked bankers and insider traders would have no safe havens under planned global guidelines for market-abuse penalties, amid concerns some countries don’t have strict enough rules.
Culprits should face prison or tough fines regardless of where they are based, said David Wright, secretary general of the International Organization of Securities Commissions, a group of global regulators working on principles for how different offenses should be punished.
“We have simply had far too many examples over the last 10 years of totally unacceptable behavior in financial markets,” Wright said in an interview. “The potential illicit financial gains for them far outweighed the risks and costs of getting caught. This equation must be reversed.”
Faith in the financial industry has been rocked by probes into suspected rigging of benchmarks including Libor and rates underpinning markets from oil to currencies. Banks in the U.K. are embroiled in scandals over improper sales of insurance products and derivatives. The European Union estimated that manipulation and insider dealing amounted to 13.3 billion euros ($17.9 billion) in the bloc’s equities markets alone in 2010.
“In my personal view,” those “who blatantly break the rules and mis-sell and try to profit unfairly, there’s only one place they should go and that’s the nearest penitentiary,” said Wright.
Penalties for market-abuse cases vary widely from country to country, Pierre-Henri Conac, a professor at the University of Luxembourg, said in an interview.
The “uncontested world champion” for enforcement is the U.S., Conac said. While the U.S. has a clear willingness to send people to jail, “this is different in other countries, like in France, where since 1970 only 2 people went to jail for market abuse”
Some regulators, including the U.K. Financial Conduct Authority, already have the power to levy fines of as much as 20 percent of an institution’s annual revenue, depending on the seriousness of the breach. That’s double the 10 percent fines European antitrust regulators can impose.
“Australia, Europe, because of the market-abuse regulation, the Swiss, U.S. and Canada, will certainly be compliant” with what Madrid-based Iosco proposes. “Others you have to take on a case-by-case basis,” Conac said.
Wright said Iosco, which brings together regulators from more than 100 nations to coordinate and set common standards, will seek to close off the possibility for market abusers to locate themselves in countries that lack effective penalties. He didn’t cite specific nations that have lax enforcement systems.
Iosco is seeking to avoid a situation where “those who want corrupt global financial markets will go to those jurisdictions with low sanctions,” he said. “We don’t want that. We want tough and sufficient sanctions everywhere. It’s about closing loopholes.”
EU lawmakers approved tougher market-abuse rules this month that seek to plug enforcement gaps in the 28-nation bloc. The measures boost minimum sanctioning powers available to authorities following warnings from EU regulators that some nations lacked sufficient deterrents.
As many as nine EU nations had maximum fines for market manipulation of 200,000 euros or less, while eight didn’t have sufficiently broad powers to impose jail sentences and other criminal sanctions, according to an EU study from 2011.
“It’s not about the fines being too low, just about them being uncoordinated,” Simon Gleeson, a financial regulation lawyer at Clifford Chance LLP, said in a phone interview. “For one regulator, a million dollars can be a lot of money, for another it’s a tiny amount,” Gleeson said. “It entirely makes sense to look at it.”
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