The financial crisis has called attention to some unsavoury market abuse practices such as traders taking advantage of insider knowledge in order to make an extra euro. But times are changing: the EP's economic and monetary affairs committee supported on 9 October the introduction of jail time for the most serious offenders. British Labour MEP Arlene McCarthy, responsible for steering the legislation through European Parliament, explains why.
It seems that financial regulators can't keep pace with all the innovations that allow firms to profit from dubious practices. How does the market abuse directive remedy the problem?
The real lesson to be learnt from the global financial crisis is the need to focus on putting in place rules and sanctions to prevent crises and not scrambling and reacting after the banks have yet again undermined people’s confidence and trust in the markets.
The aims of the new rules are to ensure all market abuse is subject to criminal sanctions and to close loopholes in the regulation of new markets, including over-the-counter and commodities markets. Market abuse cases are complex and difficult to investigate and regulators needs access to all relevant information to get a conviction.
How do you explain to citizens that people involved in scandals involving hundreds of millions of euros such as the Libor case don't have to face the same criminal sanctions as ordinary thieves? What is the EP doing about it?
The Libor scandal demonstrated that the culture in the financial sector has not changed and that we need rules to tackle emerging abuse. White collar economic crime needs to be taken seriously and perpetrators given criminal sentences.
There are currently considerable divergences between member states' approaches to market abuse. It is important to have harmonised rules on criminal sanctions in order to ensure perpetrators cannot exploit differences in regimes across the EU. There is no safe haven for those intent on committing abuse.
For the first time we are introducing EU-wide criminal sanctions with custodial sentences including a minimum maximum term of at least five years for insider dealing and market manipulation while in possession of inside information and two years for the dissemination of inside information for the purpose of insider dealing or market manipulation. This would mean that member states could not set their maximum sentence below five and two years respectively.
Do you think the unreformed financial system is at the service of citizens or is it the other way around?
There is still a lot of work to do to restore trust and confidence in banks and the financial services industry. We must get the real economy moving again and make sure consumers are protected in the financial services sector.
In response to calls from NGOs we are also introducing new measures to crack down on abusive speculation on food subsidies. Speculation on commodity markets causing food price spikes ultimately puts the poorest people in the developing world at risk. We need to put an end to these practices, which only serve the interests of profiteers and a profit-driven industry.