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The EU Market Abuse Directive and the right to silence

Author: Nicola Sharp  26 February 2021
2 min read

Posted in: Market Manipulation.

Nicola Sharp of Rahman Ravelli considers a ruling that affects an individual’s ability to avoid self-incrimination

A court ruling has clarified an individual’s right to silence in regulatory market abuse investigations.

The February ruling by the European Court of Justice (ECJ) has restricted the ways that market regulators in European Union (EU) countries can use their powers to compel an individual to give evidence during investigations into insider trading and other forms of market abuse. 

It means that regulators cannot use their statutory powers to force an individual to give testimony if doing so could violate that individual’s right to avoid incriminating themselves. 

The ECJ’s decision is the result of a case that saw Italy’s securities and exchange commission, the Commissione Nazionale per le Società e la Borsa (Consob), fine an individual (referred to as DB in the case) €300,000 in 2012 for insider trading offences. Consob fined DB a further €50,000 for not cooperating with its investigation, by postponing meetings with investigators and refusing to answer questions when interviewed. 

Consob said that DB committed an administrative offence by not cooperating with its investigation. DB’s legal representatives challenged the €50,000 fine imposed for non-cooperation. They argued that the law that compelled DB to cooperate with Consob violated the right of their client not to self-incriminate himself in a matter that could also be investigated by the criminal authorities.

This led to the ECJ being asked by Italy’s Constitutional Court to clarify the circumstances in which the EU’s Market Abuse Directive guarantees an individual’s right to silence.

The ECJ said that the Directive prevents member states from punishing individuals who refuse to answer questions during an administrative probe, where they could face liability in a subsequent criminal investigation. The judgment notes, however, that the right to silence does not cover conduct such as a refusal to appear for an interview or “delaying tactics designed to postpone [an interview]”. 

It will be for the Italian court to now decide how this ruling will apply in DB’s case. Consob has the power to fine individuals up to €3 million for failing to cooperate with its investigations, even though anything an interviewee says can be used in criminal proceedings. In 2014, the European Court of Human Rights ruled that a criminal prosecution should be dropped in circumstances where Consob’s penalties are as severe as criminal fines. 

The ruling is likely to be studied by other EU states. It will have little or no impact, however, in countries such as Germany, where the law relating to the Federal Financial Supervisory Authority’s (BaFin) power to compel testimony from individuals in regulatory market abuse investigations gives individuals the right to remain silent.

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Nicola Sharp

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Nicola is known for her fraud, civil recovery and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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