• Rate-fixing and insider dealing will carry a four year prison sentence under new legislation voted Tuesday. (Photo: stefan)

MEPs agree four-year jail term for insider trading

05.02.14 @ 09:28

  1. By Benjamin Fox
  2. Benjamin email

BRUSSELS - Financiers in the EU who rig interest rates or take part in insider trading could face years in jail under legislation backed by MEPs on Tuesday (4 February).

As part of new rules which will come into force in 2016, traders found guilty of insider dealing and market manipulation would face a prison sentence of at least four years, while people who leak information which is used for insider trading will face a sentence of at least two years.

The bill was backed by deputies in Strasbourg by an overwhelming 618 votes to 20.

Arlene McCarthy, the centre-left MEP tasked with piloting the laws through the European Parliament, described it as "a major step forward in ensuring market abuse is tackled across the EU."

"For the first time we will have EU-wide tough criminal sanctions with a minimum jail sentence of four years for insider dealing and market manipulation, which leaves member states free to introduce high sanctions should they desire," she said.

European governments currently have a patchwork approach to financial crime.

Market manipulation is not a criminal offence in Austria, Bulgaria, Slovakia and Slovenia, but there are provisions in criminal law on tipp-offs for insider trading in the Czech Republic, Greece, Finland, Germany, Italy, Slovenia and Spain.

McCarthy said that the rules “would ensure that those intent on committing market abuse can be sent to jail … and that there are no safe havens in Europe."

The new regime will allow both individuals and companies to be prosecuted for market abuse offences, while governments will also be able to levy fines of up to €5 million on individuals involved in rate-fixing.

The European Commission published draft legislation on market manipulation in 2011, but then updated it to include criminal sanctions for rate-fixing in the wake of the Libor scandal in July 2012.

The Libor affair saw the commission issuing fines totalling €1.7 billion to eight major US and European banks for forming a cartel to keep the interest rate at which banks lend to each other artificially high.

Allegations of rate rigging in the oil, gas and foreign exchange markets have also come to light.

But although a series of multi-million euro fines were handed to banks, and several top bank executives were forced to resign over Libor, nobody has faced prosecution for the rate-rigging, which affected an estimated $350 trillion in derivatives and around $10 trillion in loans and mortgages around the world.

EU justice commissioner Viviane Reding and the bloc's internal market boss Michel Barnier said the EU on Tuesday was "sending a clear signal: There must be zero tolerance for manipulators in our financial markets."