Number of proceedings

During the period under review, BaFin initiated 518 new administrative offence proceedings and concluded 654 proceedings (see figure Administrative fine proceedings from 1 July 2015 to 31 December 2016.). Consequently, 136 fewer proceedings were pending at the end of 2016 than one and a half years previously.

BaFin intends to further reduce the number of proceedings pending in order to be able to conduct its investigations in even greater depth, particularly where serious breaches of key provisions under capital market law are concerned.

Administrative fine proceedings from 1 July 2015 to 31 December 2016

Figure: Administrative fine proceedings from 1 July 2015 to 31 December 2016; © BaFin

Types of breach

A particularly high number of breaches still relate to notification and publication requirements in connection with major holdings in listed companies. This accounted for more than half of all cases concluded. Breaches of the financial reporting requirements and the ad hoc disclosure requirement were a second key area. It is for this reason in particular that the WpHG Administrative Fine Guidelines I and II contain detailed rules regarding the assessment of fines in such cases.

BaFin’s Securities Supervision Directorate also initiated proceedings for breaches of the prohibition of market manipulation and uncovered short sales, in addition to breaches of the requirements relating to company takeovers and the conduct of business obligations applicable to investment services enterprises.

Legal and natural persons

In 80% of the proceedings concluded, BaFin acted against legal persons exclusively. The main reason for this is that the provisions under securities trading law are primarily directed at issuers and investment services enterprises.

However, this does not mean that executives themselves cannot be faced with administrative fine proceedings. Where breaches are particularly serious and severe, it may be necessary to issue executives with such cautions. Proceedings are also initiated against natural persons if the provisions of the relevant standard are not directed at a closed group but apply to everyone, such as in the case of the voting rights notification requirements or the prohibition of market manipulation. In each individual case, BaFin determines, based on the facts of the matter, who the appropriate subject of the proceedings should be.

Rate of penalties and appeals

BaFin issued a fine in around one third of all proceedings concluded, (see figure Results of proceedings). At 44 and 37 percent respectively, the penalty rate was considerably higher for breaches of the ad hoc disclosure requirement and the voting rights notification requirement, for example.

Results of proceedings

Figure Results of proceedings; © BaFin

BaFin discontinued around half of proceedings for discretionary reasons, but in many cases cautioned those concerned in writing. This procedure can be applied in the event of a relatively minor (first-time) offence.

Compared with earlier statistics, BaFin discontinued a slightly higher percentage of proceedings due to factual or legal reasons. A factual reason might be, for example, a lack of sufficient evidence of a breach. The primary cause of discontinuation for legal reasons was amendments to legislation, particularly the effects of the Transparency Directive Amending Directive. For example, the requirement for an interim management statement in the first and second halves of the financial year was rescinded and not replaced. In accordance with the legal specifications related to administrative offences, the version of the law most favourable to the party concerned is to be applied in such cases.

In around three quarters of cases, those affected by administrative offence proceedings accepted the fine as part of a settlement. Almost all settlements were reached before an administrative order imposing a fine was issued. In the event that proceedings are terminated by common accord, it is possible to deduct as much as 30% from the value of the fine. The extent of the deduction depends significantly on the stage of the proceedings at which the settlement is reached. In principle, this practice serves to accelerate proceedings. Experience has shown that it also improves the understanding and acceptance of the party concerned as well as their willingness to meet their obligations under capital markets law in future. Whether BaFin considers a settlement depends on the course of the proceedings as well as the conduct of the party concerned and their defence.

In only 16 percent of cases did the party concerned appeal BaFin's decision to impose an administrative fine. BaFin subsequently submitted the majority of these cases to the responsible court in Frankfurt am Main via the public prosecutor's office. Some of the parties concerned withdrew their appeal prior to this; in a few cases, BaFin issued a new administrative fine notice.

Values of fines issued

In the period under review, BaFin imposed fines amounting to a total of around 4.6 million euros. The largest total fine against a company amounted to 1.1 million euros for various breaches of the voting rights notification requirement (see table Largest total fine against a company). The largest individual fine at 215,000 euros was imposed due to a breach of the ad hoc disclosure requirement.

Around 80 percent of all proceedings that resulted in fines fell under the scope of the first version of the Administrative Fine Guidelines for breaches of the German Securities Trading Act (Wertpapierhandelsgesetz - WpHG - only available in German) (WpHG Administrative Fine Guidelines I, see expert article and BaFinJournal December 2013 - only available in German). These guidelines govern BaFin's assessment of administrative fines in the event of breaches of the ad hoc disclosure requirement, the notification and publication requirements, and the financial reporting requirements. BaFin classified a narrow majority of breaches as moderate, while the number of minor and severe breaches were roughly equal. Breaches of the financial reporting requirements were predominantly classified as severe for reasons including delayed financial reporting or complete failure to comply with the financial reporting requirements. Issuers with relatively low turnover and market capitalisation (issuer D pursuant to the WpHG Administrative Fine Guidelines I) were often in breach of these requirements. Breaches of the ad-hoc disclosure requirements and the publication requirements were observed across the entire spectrum of issuer sizes.

Current situation

As matters stand, BaFin will conclude around 35 percent of all proceedings with fines in 2017. The Securities Supervision Directorate publishes information regarding all administrative fines issued as a result of breaches of the sanctioning regime of the Transparency Directive Amending Directive or the Market Abuse Regulation. These publications are each available for five years on the BaFin website.