These guidelines reflect the specifics of securities legislation and also help create a level playing field in the assessment of administrative fines.

Administrative fines have both a special and general deterrence effect: on the one hand they make a perceptible appeal to those directly concerned as well as to interested parties to comply with their duties. On the other, they send a clear signal to all other market participants to observe the capital market rules laid down in the Securities Trading Act (Wertpapierhandelsgesetz – WpHG).

Sanctions practice for administrative offences

Where the punishment of administrative offences is concerned, BaFin can now look back on more ten years of sanctioning practice. During that time, BaFin frequently punished breaches of voting rights notification requirements. In numerous cases, companies also violated ad hoc publication and financial reporting requirements.

When preparing the WpHG Administrative Fine Guidelines, BaFin drew both on its own experience and on that of the judiciary for the imposition of fines for breaches of securities laws. The WpHG Administrative Fine Guidelines satisfy the principles of sentencing established by the case law of the Federal Court of Justice (Bundesgerichtshof – BGH), in particular the prohibition of double assessment of circumstances relevant to the offence.

By issuing the WpHG Administrative Fine Guidelines, BaFin provides for more legal certainty by clarifying how it punishes breaches of the WpHG and which criteria it uses as basis for assessing the fines. The WpHG Administrative Fine Guidelines are also designed to strengthen efficiency and to ensure that the principle of proportionality is observed in assessing the fines.

Scope

In exercising its discretionary powers BaFin lays down Guidelines by which it proceeds against natural and legal persons in assessing the legal criteria for the imposition of a fine in accordance with section 17 of the Act on Regulatory Offences (Gesetz über Ordnungswidrigkeiten – OWiG).

The WpHG Administrative Fine Guidelines apply exclusively to breaches of ad hoc publication requirements (section 15 of the WpHG), voting rights notification requirements (sections 21 et seq. of the WpHG) and requirements relating to financing reporting enforcement (sections 37v et seq. of the WpHG) committed by natural or legal persons. The prerequisite for applying the WpHG Administrative Fine Guidelines is that the breaches are based on normal circumstances of an offence, i.e. typical cases. A normal circumstance of an offence is, e.g., where a company publishes a press release instead of an ad hoc notice. That means that the WpHG Administrative Fine Guidelines do not govern exceptional cases, i.e. cases departing from the norm.

Range of administrative fines

Pursuant to section 39 (4) of the WpHG, BaFin can punish intentional breaches of significant publication requirements – such as the requirement of a domestic issuer to publish inside information (ad hoc publication) or threshold events for voting rights – by a fine of up to 1 million euros. In cases of recklessness, the maximum administrative fine is 500,000 euros.

Breaches of the requirement to transmit annual financial reports, half-yearly financial reports and interim statements are punishable by an administrative fine of up to 200,000 euros in cases of intent and by an administrative fine of up to 100,000 euros in cases of recklessness or negligence.

Practice of assessing administrative fines

Once the facts of a case have been examined, BaFin determines the amount of the administrative fine based on how serious the breach of duties and circumstances of the offence are. To achieve this, it takes a three-step approach (see info box ): in the first step, BaFin calculates the base amount of the administrative fine using assessment criteria relevant to the offence. In the second step it applies what are referred to as adjustment criteria. For this it adjusts the base amount to reflect the specific guilt of the person concerned using additional assessment criteria relevant to the offence (and in particular to the offender). In the third step the financial capacity of the person concerned are taken into account.

Three-step assessment approach

• Step 1: Evaluation of the circumstances of the offence and calculation of the base amount
• Step 2: Evaluation of pre- and post-offence conduct of the person concerned, and adjustment of the base amount
• Step 3: Consideration of financial capacity

Base amounts

The base amount expresses the seriousness of the offence. In calculating it, BaFin applies two assessment criteria: the size of the issuer and the evaluation of the individual circumstances of the offence. The WpHG Administrative Fine Guidelines define the base amounts for the different types of offences.

A special case relates to breaches of the duty to submit voting rights notifications: the size of the base amounts takes into account the fact that generally two administrative fines are to be imposed jointly (section 20 of the OWiG), one due to the breach of the duty to notify the issuer and one due to the breach of the duty to notify BaFin. BaFin proceeds on the assumption of a joinder of offences; the Local Court (Amtsgericht) of Frankfurt am Main having jurisdiction over WpHG cases has repeatedly confirmed this legal view in its decisions.

Market capitalisation

BaFin measures the size of an issuer as a general rule on the basis of its market capitalisation. It is a generally accepted ratio applied by investors when it comes to measuring the importance of the issuer and its position on the capital market. As a rule of thumb, the more important the issuer is for the capital market, the greater the interest capital market participants have in the disclosure of significant facts, such as in timely and accurate information on changes in ownership structures arising from the acquisition or sale of interests in voting rights.

BaFin groups issuers into four size categories that are based, amongst other things, on the standard share indices (see table).

Table: Issuer categories

Size of the issuer	Issuer A	Issuer B	Issuer C	Issuer D
Market capitalisation	Over 4 billion euros	Over 500 million euros to 4 billion euros	Over 10 million euros to 500 million euros	Up to 10 million euros

Evaluation of circumstances of the offence

In addition to the issuer size, all the relevant circumstances relating to the specific case are to be considered in an overall appraisal. These include, for example, the type and duration of the breach, its effect on the capital market and the extent of the incorrect or incomplete notification or publication. BaFin classifies the circumstances of the offence in an overall assessment as severe, moderate or mild.

The WpHG Administrative Fine Guidelines give examples of relevant circumstances that arise regularly and frequently and are punishable by an administrative fine. According to this, a mild breach of section 21 of the WpHG would be e.g. a voting rights notification submitted slightly late – provided that there are no additional aggravating circumstances.

If a company has established a compliance function, this does not necessarily result in a lower administrative fine. In some cases the compliance function is even prescribed by law, and therefore has to be set up as a matter of course. However, if a compliance officer discovers a breach of the Securities Trading Act and reports this, such voluntary self-incrimination can result in BaFin reducing the administrative fine.

Evaluation of pre- and post-offence conduct

In the second assessment step, the BaFin considers the pre- and post-offence conduct of the person concerned. This may result in the base amount being increased or reduced. Particularly the confession by a person concerned can have the effect of reducing the administrative fine if it speeds up the administrative fine proceedings. The extent of such reduction will depend on the quality of the confession and the time when the person concerned concedes the offence. As a general rule, the confession should facilitate clarification of the offence. Also where proceedings are ended by mutual consent as part of a settlement, the amount of the administrative fine can be reduced.

Repeat offenders generally have to expect the administrative fine to exceed the base amount for the normal case. This is important considering the special deterrence effect.

Financial capacity

In the third and final step for assessing administrative fines, BaFin considers the financial capacity of the person concerned.

The latter, however, may also refuse to provide information on its financial capacity. In that case, BaFin may estimate the financial capacity based on the findings of its investigation.

Continuous update

BaFin plans to update the WpHG Administrative Fine Guidelines on a continuous basis. Updates may be required as a result of observations on the market and in particular developments in European and national legislation, such as the expected harmonisation of the European regime of sanctions as part of the planned Market Abuse Regulation (MAR) as well as the revision of the Transparency Directive and the Markets in Financial Instruments Directive (MiFID II). BaFin will continuously update the WpHG Administrative Fine Guidelines to such developments. Conceivably, the WpHG Administrative Fine Guidelines could also be expanded by new modules, for example by types of offences not yet taken into consideration.