Financial markets have become increasingly global with new trading platforms and technologies resulting in new possibilities to manipulate markets. In response to this, the European Parliament has recently approved a new directive on criminal sanctions for insider dealing and market manipulation.
The Directive is due to come into force later this year and is part of an ongoing process concerned with updating and strengthening the enforcement framework relating to financial markets. The Directive defines four main offences:
- Insider dealing
- Recommending or inducing another person to engage in insider dealing
- Market manipulation
- Unlawful disclosure of inside information
These offences will carry criminal sanctions when sufficiently serious and intentionally committed. Various factors will be taken into account when determining the severity of the offence, including the impact on market integrity and the level of profit or loss involved. In addition, inciting, aiding and abetting as well as attempting to commit an offence will be punishable as a criminal offence.
The penalties under the new Directive will include up to four years’ imprisonment for insider dealing, recommending or inducing another person to engage in insider dealing and market manipulation, and up to two years for the unlawful disclosure of inside information. Companies or other legal entities can also face sanctions such as judicial winding-up, disqualification from commercial activities and closure.
These new proposals reflect the changes that have occurred in financial markets in recent years. However, with the increasing role that technology plays in these markets and the constant threat of new disruptive technologies, it remains to be seen what impact these new provisions will have in terms of deterring market abuse, and the extent to which the new criminal sanctions will be imposed.