Entry into force of the law dated 23 December 2016 on market abuse

The law dated 23 December 2016 on market abuse was published in the Luxembourg official gazette (Mémorial A) on 27 December 2016 and entered into force 3 days after its publication (the “MAL”).

Adapting to the new European legal framework

The MAL:

  •     completes and clarifies the provisions of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014  on market abuse (the “MAR”);
  •     implements Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (the “MAD”) into national law; and
  •     also implements the Commission Implementing Directive (EU) 2015/2392 of 17 December 2015 on MAR as regards reporting to competent authorities of actual or potential infringements of MAR.

The MAL repeals the Luxembourg law dated 9 May 2006 on market abuse (the “Repealed Law”), which is no longer into force and is adapting Luxembourg national law to the new European legal framework on market abuse.

Even though the provisions of the MAR are directly applicable into member states national laws, it was necessary for each member states to take additional measures in order to ensure a proper application of the MAR.

Hence, according to the MAR, member states shall take the appropriate measures to comply with the provisions of the MAR relating to, amongst others, competent authorities and their powers, administrative sanctions and other administrative measures, exercise of supervisory and sanctioning powers, reporting violations and publication of the decisions.

The below items aim at giving a high level overview of how Luxembourg implemented such measures.

1 The main administrative aspects

(a) Investigation and supervisory powers of the Supervision Commission of the Financial Sector

The Supervision Commission of the Financial Sector (the "CSSF"), the Luxembourg competent authority  under the MAR, is granted with a comprehensive set of investigation and supervisory powers, such has a right to access any document or information, to conduct inspections and seize any document, whenever the persons under the investigation is under its supervision. When the person is neither supervised by the CSSF nor an issuer, such powers can be exercised after a judicial authorization of the investigating judge, who will verify that the required measure is justified and proportionate to the aim.

With regard to persons not supervised by the CSSF and issuers, the CSSF can carry on-site inspections on the ground of the judicial authorization or with the consent of the investigated person. Such inspection takes place with a member of the police department designated by the investigating judge and under certain conditions laid down by the MAL.

The MAL maintains in its Article 7 the same consultation mechanism which was already provided by the Repealed Law between the CSSF and the state prosecutor. This means that when the CSSF has enough proof to initiate an administrative proceeding, which may lead to the imposition of an administrative sanction, it will inform the state prosecutor before any criminal proceeding. If the state prosecutor decides to proceed, the CSSF will refrain from proceeding. If the state prosecutor does not proceed within two weeks, the CSSF can proceed. This principle aims at avoiding double prosecution for the same facts.  

(b) Cooperation of the CSSF with the European Securities and Markets Authority (ESMA) and other competent authorities

According to Article 22 of the MAR, competent authorities, among which the CSSF, shall cooperate with ESMA and provide ESMA with all information necessary to carry out its duties, without delay .

The CSSF shall also, according to Article 10 of the MAL, cooperate with the other competent authorities referred to in article 25 of the MAR.

This includes the competent authorities of other member states and third countries competent authorities.

The CSSF can require other competent authorities to investigate or to carry on-site inspections on its territory in the same conditions as it was provided in the Repealed Law.

According to the MAL, the CSSF can exchange information with third countries competent authorities when this information is necessary to the other authority’s mission. The authority receiving the information has a duty to keep it confidential and can use the received information only for the aim for which it was transmitted.  

Indeed such information cannot be transmitted by the CSSF to another competent authority if judicial proceedings are already engaged in Luxembourg for the same facts or if the person was already convicted for such facts in Luxembourg.

(c) Administrative sanctions and other administrative measures

In its implementation, the Luxembourg legislator meant to be more severe than the minimum level of protection provided in the European legislation.

The MAL provides for administrative and criminal sanctions that are of a higher level of those provided in the MAR. This was made possible by Article 30, paragraph 3 of the MAR.

Hence, it is provided in the MAL that the CSSF can impose a temporary ban of a person discharging managerial responsibilities within an entity supervised by the CSSF or another natural person who is held responsible for the infringement, from dealing on own account, and thus for a maximum of five years. In the same way, a maximum administrative fine of at least ten times the amounts of the profit gained or losses avoided because of the infringement, while the MAR provides for an amount of a maximum of three times such amounts.

(d) Exercise of supervisory and sanctioning powers

The MAL does not differ from the provisions of the MAR regarding the exercise of supervisory and sanctioning powers by the CSSF. Therefore the provisions of the MAR relating to the exercise of supervisory and sanctioning powers are directly applicable into national law as it stands.
In determining the type and level of the applicable sanctions, the CSSF shall take into account all relevant circumstances,
including the following:  the gravity and duration of the infringement, the degree of responsibility of the person responsible of it, the financial strength of the person responsible for the infringement (total turnover or annual income), the importance of the profits gained or losses avoided by committing the infringement, the level of cooperation of the person with the CSSF, previous infringements of that person, and the measures taken by that person to avoid repeating the infringement.

(e) Procedures for reporting violations

Rules relating to reporting violation are laid down in the Annex to the MAL.
Specific procedure is settled for the treatment of any reported violation, whereby the CSSF shall assign trained member of its staff. Any reported violations shall be published on the CSSF’s website.
Privacy of the information is guaranteed through the use of specific independent and autonomous communication channels differing from the normal communication channels of the CSSF.
The MAL also provides that the CSSF shall cooperate with the Labor and Mines Inspection in order to protect against reprisals, discrimination and unfair treatment any employee who would have reported a violation under the MAR.

(f) Publication of decisions

The MAL provides that any decision shall be published on the CSSF’s website and be available for at least five years after its publication, in accordance with the MAR.

Moreover, it is provided that any personal data shall be kept on the CSSF’s website only for a maximum period of twelve months. This was added by the MAL in order to increase the protection of privacy.

2 The main criminal aspects

The MAL also provides for criminal sanctions applying to persons committing or recommending or inducing another person to commit insider dealing, unlawful disclosure of inside information and market manipulation.

Those infringements  are punishable with imprisonment, fine or even both.  

For natural persons the penalties for insider dealing and market manipulation  are a term of imprisonment of between three months and four years or a fine of between  EUR 251 and  EUR 5,000,000. For insider dealing, this fine may be increased up to ten times the amount of the profit realised and shall under no circumstances be less than this profit.

For legal persons, the penalties for those infringements  are a fine of  between  EUR 500 and  EUR 15,000,000 . For insider dealing, this fine may be  increased to ten times the amount of the profit realised and shall under no  circumstances be less than the said profit.

For natural persons, the penalties for unlawful disclosure of inside information are a term of imprisonment of between eight days to two years or a fine of  between  EUR 251 and  EUR 500,000. For legal persons, penalties for such infringement are a fine of  between  EUR 500 and  EUR 15,000,000.

The MAL brings graver protection against market abuse than it is required under the European legal framework. Consequently to such strengthen of the sanctions, it is now time for persons concerned by this matter to update their internal policies.