Wednesday, December 25, 2013

ESMA Proposes Rules for Imposing Fines on Derivatives Trade Repositories under EMIR

The European Securities and Markets Authority (ESMA).has proposed procedural rules allowing it to fine derivatives trade repositories under its jurisdiction pursuant to the European Markets Infrastucture Regulation (EMIR), which gives ESMA direct supervision of trade repositories.   ESMA must assess and examine the applications of trade repositories for registration and, once the registration is granted, carry out their on-going supervision.

When the conditions in EMIR are fulfilled, ESMA may also recognize trade repositories authorized and subject to effective supervision in the U.S. or other non-E.U. third countries which have been recognized by the European  Commission as having an equivalent and enforceable regulatory  framework and which  have entered into an international agreement with the E.U.,  as well as  into cooperation arrangements.

Pursuant to Article 65 of EMIR, when ESMA finds that a trade repository  has  intentionally or negligently  committed one of the infringements listed in Annex I of EMIR, it must impose a fine in accordance with the relevant provisions of Article 65.  The Commission must approve the procedural rules proposed by ESMA for imposing such a fine.

ESMA proposes that a person subject to investigation would have the  right to be heard at different stages of the procedure.  One of the stages at which the person subject to investigation has the right to be heard is during and after the completion of the investigation by the investigating officer.  After the completion of the investigation, the investigating officer has to produce a statement of findings setting out the facts and the reasons for which they are liable to constitute one or more of the infringements listed in the Annex I of EMIR, including any aggravating or mitigating factors of these infringements.

The person subject to investigation must be given the right to comment on the
statement of findings. In its written submissions, the person subject to investigation should be allowed to comment on the facts set out in the statement of findings, including to set out all the facts known to it which are relevant to its defense.

ESMA considers that another stage where the right to be heard should be guaranteed is where the complete file of the investigation is submitted to the ESMA Board of Supervisors  for deliberation and the adoption of a decision. On the basis of the statement of findings and the written submissions and, if relevant, the minutes of the submissions made at an oral hearing, ESMA must decide whether to close the case or  impose a fine or a periodic penalty payment relating to a fine on the person subject to investigation.
If ESMA introduces a material change to the statement of findings, it must give the person subject to investigation another opportunity to exercise its rights of defense by way of written submissions. If ESMA adopts a decision imposing a penalty on the person subject to investigation, it must notify the person of that decision. In the case of a fine, this notification must be done immediately.

 Under the proposals, ESMA’s power to impose fines on trade repositories would be subject to a five-year limitations period.. The limitations period for imposition of penalties would begin to run on the day following that on which the infringement is committed.