BaFin s sanctioning practice. Jochen Kindermann Lennart Dahmen

Transcription

1 BaFin s sanctioning practice Jochen Kindermann Lennart Dahmen

2 European landscape Harmonization and bigger fines After the financial crisis of 2007, report by De Larosiere (2009) Competent authorities in all Member States must have sufficient supervisory powers, including sanctions, to ensure the compliance of financial institutions with the applicable rules; Differences in application/sanction practice Differences in importance/priority of breaches BaFin has increased the frequency and amount of its sanctions TD2, CRIM-MAD, MiFID II et al 1 / L_LIVE_EMEA2: v4

3 BaFin: sanction-bent watchdog or considerate regulator? Market supervision: Sanctions as reaction to misdemeanours by market participants disciplinary reaction + reminder of obligations BaFin considers itself to be quite restraint, in particular in international comparison: Selection of cases Sanctions are only imposed in one third of the cases Settlement possible Principle-based approach/admission of guilt Amounts Roegele: to remedy deficiencies takes precedence over the imposition of sanctions 2 / L_LIVE_EMEA2: v4

4 Cases closed by the sanction department % % 80% 60% 70% cases closed % 48% % 36% 36% % % 23% % 40% 30% 20% 10% 0% cases closed with a sanction sanction quota Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. 3 // L_LIVE_EMEA2: v4

5 Total amount of sanctions imposed by BaFin Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. 4 // L_LIVE_EMEA2: v4

6 Topics and statistics cases forwarded by the departments cases closed by the sanction department Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. 5 // L_LIVE_EMEA2: v4

7 Type of conclusion sanction quota 10% 1% 37% fine (511) 52% dismissal due to opportunity (714) dismissal due to actual and legal reasons (144) criminal proceedings (11) 6 / L_LIVE_EMEA2: v4

8 Proceedings concluded with a fine 4% 1% 1% 1% 2% 9% notification requirements/ publication obligations (252) financial reports (62) information obligation (47) 5% 7% 49% Ad-hoc-publicity (37) market manipulation (24) Code of Conduct WpDU (18) takeover (12) 9% reporting requirements (7) uncovered short sales (5) 12% Directors' Dealings (4) other (43) 7 / L_LIVE_EMEA2: v4

9 Highest overall fine imposed on a company executable order (sec. 4 WpHG) reporting requirements (sec. 9 WpHG) Ad-hoc-publicity (sec. 15 WpHG) Directors' Dealings (sec. 15a WpHG) market manipulation (sec. 20a WpHG) notification requirements (sec. 21, 25 f. WpHG) 3,25 Mio. publication obligations (sec. 26 f. WpHG) information obligations (sec. 30b ff. WpHG) uncovered short sales (sec. 30h WpHG) Code of Conduct WpDU financial reports (sec. 37v ff. WpHG) takeover (WpÜG) prospectus (WpPG) / L_LIVE_EMEA2: v4

10 Rewards for appealing a BaFin sanction notice? Might become more relevant in light of changes Only 17% of offenders appeal a sanction notice Appeal triggers a further review by BaFin Negative impact on sanction? Negotiation Quote of outright rejection of appeal is relatively low Subsequent results: Court proceeding New sanction notice Retraction of appeal Non-admittance of appeal Rejection of appeal 9 / L_LIVE_EMEA2: v4

11 BaFin s sanction practice: recent developments Sanctions in cases, 52 sanctions imposed (approx. 38%) Highest fine YTD: EUR 195,000 No decisions in cases with new ceiling amounts yet 1,033 cases still open (April 2016) First cases with new sanction frame no decisions yet grandfathering Naming and shaming 10 / L_LIVE_EMEA2: v4

12 Everything is getting more expensive and so are sanctions Various EU rules have recently introduced sanctions with a turnover-based framework. Ex.: Transparency Directive 2 (highest amounts prevails) ceiling amounts: EUR 10m; 5% of annual turnover (group-wide); or 2x economic benefit. First turnover-based sanctions for the capital markets in Germany Naming and shaming 11 / L_LIVE_EMEA2: v4

13 How BaFin will determine a sanction Two step approach sanction ceiling individual sanction 12 / L_LIVE_EMEA2: v4

14 Finding the sanction ceiling For sanction ceiling (highest amount prevails): Absolute amount Turnover-based amount or Multiple of economic benefit 1 st step: Setting the ceiling Turnover: group-wide, previous FY Economic benefit: profits and saved expenses 13 / L_LIVE_EMEA2: v4

15 Determining the sanction (I) Making use of the sanction frame Three steps to determine sanction: Determining base amount Considering actions of offender Economic situation of offender 2 nd step: determining the individual sanction Base amount likely to be significantly higher due to turnover-basis of sanction Influence of further factors on the base amounts Decrease Increase 14 / L_LIVE_EMEA2: v4

16 Determining a sanction (II) 1 st level determining the sanction ceiling Determination of absolute amount Ex.: EUR 10m for TD2 breaches, EUR 15m for MAR/MAD Determination of turnover-based amount Ex.: 5% for TD2 breaches, up to 15% for MAR/MAD Determination of multiplied economic benefit Ex.: 2x for TD2 breaches, 3x for MAR/MAD Highest amount prevails and sets the sanction ceiling 15 / L_LIVE_EMEA2: v4

17 Determining a sanction (III) Setting the ceiling an example for TD2 Breach of TD2 rules Absolute ceiling turnover-based ceiling (5% of annual turnovers of EUR 10bn) Maximum ceiling based on economic benefits Determination of sanction ceiling EUR 10m EUR 500m 0 (typically no distinguishable benefit) Applicable maximum ceiling for a sanction EUR 500m 16 / L_LIVE_EMEA2: v4

18 Determining a sanction (IV) Likely: orientation on cartel experiences German cartel/anti-trust law allows for turnoverbased sanctions (5%/10%) Application of multipliers depending on annual turnover German Federal Cartel Office imposes turnover-based sanctions A similar concept has been proposed by BaFin for sanctions for capital markets offences Base amounts Multipliers 17 / L_LIVE_EMEA2: v4

19 Previously: Guideliness offered clear guidance Under the old rules, breaches carried a maximum fine of EUR 1m for intent and EUR 500k for recklessness. In addition, BaFin sanctioned organizational deficits combining multiple breaches and resulting in further reductions. Effective sanction frame: EUR 250k per deficit. Guidelines were available (individual cases): 18 / L_LIVE_EMEA2: v4

20 Outlook: New sanction guidelines still not released by BaFin Publication planned for the next quarter (Q3/2016) New guidelines likely to include more granularity for issuer groups Clearer guidance how BaFin will use new sanction powers Base amounts Multipliers? Realistic view to sanction amounts Organizational deficits? 19 / L_LIVE_EMEA2: v4

21 Naming and shaming (I) Bad publicity Principle: Immediate publication of measures and sanctions Irrespective of right to appeal Contents of publication Depending on breach, publication can be anonymized, delayed or abstained from 20 / L_LIVE_EMEA2: v4

22 Naming and shaming (II) New in Germany for capital markets Extensive experience in anti-trust cases. Practice of the Federal Cartel Office was recently greenlit by Higher Regional Court Düsseldorf. Practice was in principle adopted by BaFin in May 2015, but effectively limited to banks so far. BaFin: five case in twelve months Federal Cartel Office: Information on more than 50 sanction notices since 2001 Right to be forgotten? Whistleblower 21 / L_LIVE_EMEA2: v4

23 Example of naming and shaming by the Cartel Office (I) Press release press release Number of sanctioned companies and persons Only companies are indicated by name, not the involved natural persons Course of the procedure, result of the investigation, determination and overall amount (!) of the fines [ ]. [ ] Statement of the president of the Federal Cartel Office Reference to legal effect including legal remedies Permissibility of this practice confirmed: OLG Duesseldorf, ruling of on the Wurstkartell 22 / L_LIVE_EMEA2: v4

24 Example of naming and shaming by the Cartel Office (II) Published case report case report Reasons for fines, industry, case reference number, date of the decision(s) Name of the companies Course of the procedure, result of the investigation determination and overall amount (!) of the fines Detailled explanation of the accusation and facts Reference to possibility of appeal Reference to the status of the report and the possibility of subsequent events. 23 / L_LIVE_EMEA2: v4

25 Example of naming and shaming by the Cartel Office (III) Regular public report Activity report Overview of the work of the Federla Cartel Office over the last two years For sanction proceedings: (further) events after filing of an appeal. If necessary, description of judicial decisions Includes a detailled section regarding statistics, including those depicting fines per year (imposed/collected) 24 / L_LIVE_EMEA2: v4

26 Addendum: BaFin on the hunt for short breaches? Wind of change Previously: Sanctions primarily for uncovered short sales; lenient approach to late filings. Now: Apparently formalized approach No sanctions so far Institutionalised handling of cases BaFin appears to be getting less tolerant with regards to notifications for net short positions Indicator of things to come? Fine potential: up to EUR 200,000 per case 25 / L_LIVE_EMEA2: v4

27 Jochen Kindermann Partner T E jochen.kindermann@simmons-simmons.com Lennart Dahmen Associate T E lennart.dahmen@simmons-simmons.com simmons-simmons.com elexica.com This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name Simmons & Simmons or one or more of those practices as the context requires. The word partner refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP s affiliated practices. For further information on the international entities and practices, refer to simmonssimmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address. 26 / L_LIVE_EMEA2: v4