What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
Banking & Finance (2nd edition)
The FMA can impose sanctions in case of violations of banking regulations. The BWG provides inter alia for "penalty interests" as compensation for the benefits arising from the violation (sec 97 BWG), fines (for certain violations that do not fall within the jurisdiction of the courts), suspension of voting rights for the shareholdings, “naming and shaming”, provided that such disclosure does not seriously jeopardize the stability of the financial markets or cause a disproportionately high level of damage to the parties concerned or in severe cases a receivership as well as the sections set forth in sec 100 BWG.
The infringement of any provisions of the Law or any regulations or directives issued by the CBC under the said Law is an offence punishable by the following ways:
- imprisonment not exceeding 5 years
- a fine not exceeding one million Euros (€1.000.000)
- by both aforementioned ways.
In case of a continuing offence by a further fine not exceeding 5 thousand Euros (€5.000) for each day during which the offence continues.
The FFSA may impose administrative sanctions in the form of penalty payments for example for the willful or negligent offering of services outside the scope of the applicable licence of the credit institution, breaches against the transparency and reporting regulations and breaches against the governance, administration and remuneration provisions. When deciding upon the amount of the penalty payment, the FFSA takes into account the nature, scope and duration of the breach, profits gained or damage caused, cooperation with FFSA in investigating the matter, previous breaches related to financial market provisions as well as any potential impact on financial stability.
A penalty payment may be imposed on a legal person and/or such member of the management who has significantly contributed to the act or omission. Penalty payments for legal entities can be imposed up to an amount equaling 10% of the annual turnover from the previous financial year, and for natural persons up to 10% of the annual income from the previous tax year, however not exceeding EUR 5 million.
The FFSA may also impose a conditional fine compelling the credit institution to observe an order issued by the FFSA.
Willful or grossly negligent offering of services without an applicable licence is subject to criminal sanctions amounting to fines or imprisonment for up to one year.
The enforcement committee of the ACPR could order two different natures of sanctions:
• Disciplinary sanctions:
o prohibition from conducting certain operations for a maximum period of ten years and any other restrictions on the conduct of its activity,
o temporary suspension of senior managers for a maximum period of ten years,
o compulsory resignation of senior managers,
o partial or total withdrawal of the license or authorisation and being struck off the list of authorised entities
• Financial sanctions:
o and/or a fine up to EUR 100 million (EUR 1 million for bureaux de change) or , in the event of non-compliance with CRR, the penalties incurred by legal entities amount to 10% of turnover or twice the benefits derived from the breach when it can be assessed and a maximum amount of EUR 5 million for the responsible leaders.
The decisions taken by the Sanctions Committee are published in the official register of the ACPR and are made public However, the Committee’s decision may provide for its publication without specifying the name of the bank in very exceptional cases where there could be a “risk of seriously disrupting finan-cial markets or of causing a disproportionate prejudice to the parties involved”.
The BRSA is entitled, with a wide discretion, to impose certain measures and sanctions on a bank if, following the audits conducted on such bank on a consolidated or unconsolidated basis, it is determined that one of the circumstances listed under the Banking Law has arisen with respect to such bank:
(i) the liabilities of the bank are likely to exceed its assets or the bank does not comply with the liquidity requirements;
(ii) the profitability of the bank is not sufficient to reliably perform its activities due to the impaired balance between its income and expenses;
(iii) the equity capital of the bank is or is likely to be inadequate pursuant to the capital adequacy requirements;
(iv) the quality of the assets of the bank has deteriorated in a manner to weaken its financial condition;
(v) the bank is determined to have decisions, transactions or operations contradictory to the Banking Law, the secondary legislation or decisions issued by the BRSA thereunder;
(vi) the bank fails to establish internal systems units in an efficient and sufficient manner; or
(vii) the improvident management of the bank causes a material increase in the risk exposure or causes such risks to intensify in a significant degree to weaken its financial status.
The measures stipulated under the Banking Law are remedial, reformatory or restrictive, depending on the financial status of the respective bank and include, amongst others, (i) temporary suspension of distribution of the profits and transfer of such profits to the reserves, (ii) increase liquidity by selling off assets, (iii) restriction or prohibition on new investments or credit transactions, (iv) restriction on payment of fees and other types of payments to third parties and etc.
Furthermore, the BRSA is entitled to revoke the operation license of a bank or to transfer the management and audit of a bank to the SDIF, if:
(i) such bank fails to implement the measures imposed by the BRSA in a timely manner;
(ii) the financial condition of such bank is not recovered despite the implementation of the measures and sanctions imposed by the BRSA;
(iii) the BRSA is of the view that the financial status of the respective bank will not improve even if certain measures and sanctions are
(iv) the respective bank cannot fulfill its liabilities when such liabilities are due or the total amount of the liabilities of such bank exceeds the total amount of its assets.
FINMA has a broad range of supervisory instruments available to perform its tasks. It has relatively wide discretion with respect to which measures it decides to take, as long as the measures are suitable, re-quired and proportionate. These instruments include: measures to restore compliance with the Financial Market Acts; declaratory rulings stating that a legal requirement had been breached; prohibition from acting in a management capacity at any firm subject to its supervision for a period of up to five years; confiscation of profits; appointment of an independent investigating or audit agent; revocation of the license/recognition/registration; or suspension of voting rights.
Moreover, the violation of Financial Markets Acts can lead to severe punishment, including imprisonment (e.g., unlicensed deposit taking or insider trading) or substantial fines (e.g., the violation of disclosure duties with respect to listed companies). The authority responsible for prosecution and judgement of violations of any criminal provisions of FINMASA or the Financial Market Acts is the Federal Department of Finance's Criminal Division. Where proceedings before the courts are requested or if the Federal De-partment of Finance is of the view that the requirements for imprisonment or a custodial measure are met, the offence is subject to federal jurisdiction. In such a case, the Federal Department of Finance shall refer the files (which is deemed to be the bringing of changes) to the Office of the Attorney General of Switzerland for proceedings before the Federal Criminal Court.
NBS has a wide variety of sanctions which it can impose on banks. Type of sanction shall correspond to the seriousness of the violation. The most severe sanction is the withdrawal, suspension or limitation of a banking license (for banking activities). In addition, the NBS may impose on the bank for violation of the bank rules a fine up to EUR 332,000 or in case of repeated or serious breach of up to 10% of the total annual turnover for the previous calendar year on a bank. NBS may also impose on a bank a forced ad-ministration (receivership) or impose an obligation to maintain higher value of own funds.
The sanctions vary significantly depending on the rules that are violated and range from up to five years imprisonment for the conduct of banking services without having the appropriate licence to fines of up to five million Euro or 10% of the annual turnover. Further, BaFin can cancel a credit institution’s licence.
The sanctions the regulator can order in the case of violation of banking law provisions include criminal investigation (although BoI does not have criminal investigation powers itself but rather depends in the police and the Ministry of Justice), fines and other monetary sanctions, and in certain situation the ability to appoint a trustee for one's holdings in a banking corporation.
The sanction the regulator can order in case of a breach of PBC Rules include administrative sanctions and the ability to force banks to include provisions in its books.
BoI has also the power to ask in extraordinary situation the termination of an officer or a director in a bank.
Other relevant regulators like the ISA may inflict criminal and administrative sanction for corporations and individuals.
This would depend on the particular provision or requirement that is violated.
Violations of statutory requirements are generally enforced via criminal prosecution. For instance, a person who transacts banking business without a licence is liable, upon conviction, to a fine not exceeding S$125,000 or to imprisonment for a term not exceeding 3 years or to both. In the case of a continuing offence, there will also be a further fine not exceeding S$12,500 for each day the offence continues after conviction. In the case of a corporate offender, the penalty will be a fine not exceeding S$250,000 and, in the case of a continuing offence, a further fine not exceeding S$25,000 for each day the offence continues after conviction.
Individuals who willfully cause a corporation to breach a regulatory requirement may also be held criminally liable in certain cases.
However, in practice, there are a broad range of enforcement measures available to MAS and it is rare for MAS to refer a matter for criminal prosecution. The most powerful weapon at the disposal of MAS is in fact the ability to revoke a bank’s licence. In less serious cases, MAS may impose ad hoc curbs on a bank’s operations either for a specific or indefinite period of time.
The FSA may order a bank to take remedial measures, suspend all or part of its business, deposit its assets, or take other necessary measures for the bank’s sound and appropriate operation.
If a bank violates the Banking Act or other laws, its articles of incorporation, or the FSA’s orders, or commits an act that harms the public interest, the FSA may order the bank to suspend all or part of its business or dismiss its directors, or revoke its banking license.
Other than these administrative sanctions, the regulators cannot sue banks before a civil court in Japan to seek civil penalties.
The Banking Law provides for the imposition of penalties where persons carry out banking business and/or investment banking business in Oman without complying with the licensing regulations set out in the Banking Law or the CMAL, with such persons potentially being held liable to a fine and/or a term of imprisonment as well as the closure of business premises from which the unlicensed activities may have been conducted.
Pursuant to Article 30 of the Law of Georgia on the Activities of Commercial Banks, the National Bank of Georgia can apply the following sanctions in case of violation of banking regulations in accordance with the rules established by the law:
a) send a written notice of warning;
b) determine special measures or issue an instruction (guideline);
c) impose a financial penalty;
d) enforce payment of a financial penalty;
e) suspend the administrator’s right of signature and demand a commercial bank’s Supervisory Board to temporarily remove or dismiss him/her from office;
f) demand a commercial bank’s supervisory board and board of directors to convene an extraor-dinary general meeting of shareholders to discuss violations and to take necessary measures for their correction;
g) suspend or restrict a commercial bank from increasing assets, distributing profits, paying divi-dends and bonuses, increasing salaries and soliciting deposits;
h) in special cases, when interests of commercial bank depositors or other creditors are endan-gered, suspend active operations of the bank, and impose provisional administration;
i) demand that controlling persons of a commercial bank cancel or restrict control if the bank fails to provide the National Bank with financial or other information, or any violation is detected;
k) revoke the banking license of a commercial bank.
The FMA is authorized to issue injunctions and impose sanctions. These include a withdrawal of the license and dissolution of a bank or investment firm. Further sanctions, such as penal provisions depend on the type of violation. For example, anyone who performs banking activities without a license, operates a representative office without a license or operates a branch without a license may be punished with imprisonment of up to three years or with a monetary penalty of up to 360 daily rates. Further, any-one who engages in activities by virtue of the free movement of services (within the EEA) before the respective preconditions have been met shall be punished with imprisonment of up to six months or with a monetary penalty of up to 180 daily rates. The amount of the daily rates depends to the economic capacity of the party concerned.
Under Article 63 of the Financial Sector Law, the CSSF may impose administrative sanctions on banks subject to its supervision for, amongst others, failure to comply with applicable laws (including the CRR Regulation). The administrative sanctions are as follows:
- a warning;
- a reprimand;
- a fine ranging between EUR 250 and EUR 250,000;
- one or more of the following measures: (a) a temporary or definitive prohibition on the execution of any number of operations or activities, as well as any other restrictions on the activities of the person or entity; (b) a temporary or definitive prohibition on participation in the profession by the de jure or de facto, directors or senior management personnel of persons or entities subject to the supervision of the CSSF.
Without prejudice to the above, the Financial Sector Law also provides for administrative penalties sanc-tioning breaches of authorisation requirements and the rules on the acquisitions of qualifying holdings, these being, amongst others:
- in the case of a legal person, administrative pecuniary penalties of up to 10% of the total annual net turnover; and
- in the case of a natural person, administrative pecuniary penalties of up to EUR 5 million.
In certain cases, the CSSF can also withdraw the authorisation of the CRR institution. This is the case when, amongst others, (a) a CRR institution has obtained the authorisation through false statements or any other irregular means; or (b) a CRR institution, on becoming aware of any acquisitions or disposals of holdings in their capital that cause holdings to exceed or fall below one of the thresholds referred to in the response to Question 18. above, fails to inform the CSSF thereof.
Apart from the administrative sanctions referred to above, criminal sanctions are also applicable.
Fines and accessory sanctions may be applied to individuals or legal entities who commit administrative offenses concerning banking law and regulations.
Fines are set, inter alia, taking into account the gravity of the breach and the nature of the infractor (if he/she is an individual or legal entity) – from EUR 1,000.00 up to more than EUR 5,000,000.00.
In addition to fines, accessory sanctions may also be applied:
a) loss of the benefit of the breach;
b) loss of the object of the breach and goods belonging to the offender which are
related to the breach;
c) publication of the final decision;
d) where the infractor is an individual, prohibition from being a member of a corporate body, as well as from holding top-, mid- or lower-level management positions in any entity subject to supervision by Banco de Portugal, for a period from six months to three years or from one year to ten years;
e) suspension from exercising voting rights conferred on shareholders in any entity subject to supervision by Banco de Portugal, for a period from one year to ten years.
In terms of the Banking Act, the MFSA may inter alia, impose restrictions if it considers that the credit institution has failed to comply with any of the provisions of the Banking Act or any regulations or Banking Rules made thereunder, or with the conditions under which the licence is granted. These restrictions may include such restrictions as the MFSA shall consider appropriate for the proper compliance by the credit institution with the provisions of the Banking Act and the conditions, if any, of its licence, and for the protection of depositors. Such restrictions may include requiring or prohibiting the credit institution from undertaking any transaction or transactions or any class of business or be permitted to undertake any transaction or transactions or any class of business only upon such terms as the competent authori-ty may prescribe. Where any person fails to comply with any of the conditions imposed in a licence, and, or where the MFSA is satisfied that a person’s conduct amounts to a breach of any of the provisions of banking regulations, or such person has failed to comply with a directive issued by the MFSA as afore-mentioned, the MFSA may, by notice in writing and without recourse to a court hearing, impose on such person an administrative penalty of:
- up to twice the amount of the benefit derived from the breach where that benefit can be deter-mined;
- in the case of a natural person, up to €5,000,000; or
- in the case of a legal person, up to 10% of the total annual net turnover of the undertaking in the preceding business year including the gross income consisting of interest receivable and similar income, income from shares and other variable or fixed-yield securities, and commissions or fees receivable in accordance with Article 316 of the CRR (provided that, in the case of a subsid-iary of a parent undertaking, the relevant gross income shall be the gross income resulting from the consolidated account of the ultimate parent undertaking in the preceding business year).
Depending on the seriousness of the breach, the MFSA may also decide to suspend or withdraw the banking licence. More broadly, the MFSA may, whenever it deems necessary, give, by notice in writing, such directives as it may deem appropriate in the circumstances in order to carry out its functions and duties.
Article 216 of QCB Law provides:
The Bank may impose a financial penalty of not more than (10,000,000) ten million riyals for each violation, committed by the financial institution, of the provisions of this Law or the bylaws, resolutions or instructions issued in implementation thereof.
It may also impose a financial penalty of not more than (100,000) one hundred thousand riyals per day for each ongoing violation, committed by the financial institution, of the provisions of this Law or the bylaws, resolutions or instructions issued in implementation thereof.
The Bank shall determine the appropriate financial penalty in accordance with the gravity and enormity of the offence, according to the circumstances of each individual case, and after notice and warning to the financial institution in violation to remove the causes of the violation within a specified period.
Article 217 of the QCB Law provides:
The Bank may impose a financial penalty of not more than (2,000,000) two million riyals on any financial institution that refuses to provide the Bank or its inspectors with information or data they require, or refuses to allow them access to books, records and documents, or provides them with misleading information.
It is also to be noted that sanctions relating to anti money laundering will be sanctioned by virtue of law No. 4 of 2010 (“Money Laundering law”). Under Article 72 of the Money Laundering law the sanction is prison term not exceeding seven years and a fine not exceeding QAR 2,000,000.
As a matter of principle, the sanctions applied by the NBR must be efficient, proportionate with the wrongdoing and discouraging in nature. Before applying a sanction, the NBR must assess the personal and de facto circumstances.
Non-compliance with the banking regulations may trigger the application of sanctions and/or sanctioning measures by the BNR. As such, the sanctions are the following: (i) a written warning; (ii) a public warning; (iii) in the case of legal entities, a fine of 10% of the net turnover for the previous year, including the gross revenue consisting of the interest to be cashed and other similar revenue, income from shares and other securities with variable or fixed yield, as well as the commissions or taxes to be collected, as they are regulated by article 316 of the EU Regulation no. 575/2013; if the legal entity is a subsidiary, the relevant gross revenue is determined based on the consolidated financial statements of the highest rank parent company for the previous year; (iv) in the case of individuals, a fine up to EUR 5 million; (v) withdrawal of the approval of the members of the board of directors and managers or of the supervisory board and directorate, respectively; and (vi) a fine up to twice the value of the benefit (if assessable) obtained by committing the wrongdoing.
The sanctioning measures are the following: (i) order to cease the illegal activity; (ii) temporary interdiction to hold a position within the board of director or as a manager or within the supervisory board or directorate of a credit institution, as applicable; (iii) withdrawal of the authorization of the credit institutions; and (iv) suspension of the voting rights of the responsible shareholders(s).
In case of violation of laws regulating banks, the regulator may order a number of sanctions, that is, to take one of the following corrective and coercive measures: 1) send a letter or warning, 2) issue orders and measures for the removal of determined irregularities (for example, temporary termination or limitation of loan approvals, reduction, i.e. limitation of exposure; dismissal of members of the Managing Beard and/or Executive Board; change the bank’s governance or organizational structure, etc.), 3) cancel the operating license of the bank. The National Bank of Serbia may determine a pecuniary fine to the bank, member of the Managing Board, or the Executive Board, in the amount of up to 10% of the annual income of the bank, or in the amount of annual compensation/salary.
This will depend on the nature of the breach but sanctions range from reprimands to fines to suspension of loss of a banking licence. There are also criminal sanctions for certain violations (e.g. in relation to change of control).
The different federal and state bank regulatory agencies may take a variety of formal and informal enforcement actions against institutions they supervise and related individuals, which also depend on the nature of the violation. These enforcement actions include, among others, cease and desist orders, written agreements, orders assessing civil money penalties, removal and prohibition orders with respect to natural persons, commitments, board resolutions and memoranda of understanding. The authority of bank regulatory agencies to take such actions is quite broad and is exercised pursuant to an administrative scheme that requires no court involvement. In extreme cases, violators may be subject to criminal prosecution and penalties.
Depending on the nature of the breach, the Italian Banking Act provides for criminal, administrative or disciplinary sanctions. The type of sanction ranges from up to 4 years imprisonment to pecuniary sanctions (up to 10% of turnover or Eur 5 million with reference to individuals). In the most serious cases, in addition to the pecuniary sanctions, the Bank of Italy may impose a temporary interdiction from taking office.
Criminal and administrative sanctions concern, inter alia, the following conducts:
- unlawful collection of public savings;
- illegal banking or financing activity;
- illegal issuance of electronic currency;
- unauthorized acquisition of shareholdings in banks (it is envisaged the suspension of voting rights related to the shareholding acquired without the necessary authorisation).
This would depend on the particular provision or requirement that is violated as specified in the FIB Act and the relevant notifications.
The FIB Act provides penal provisions for any person, financial institution and/or a director, manager or person with power of management of such financial institution. The actions/violation include, but are not limited to, undertaking commercial banking business without a license, failure to comply with shareholding requirement and failure to comply with operational requirements under the FIB Act.
The penalties include a one-time fine, fine until rectification has been made, imprisonment or both.
Bank of Slovenia has the authority to impose fines in case of violations of banking regulations, whereby the fines are proportionate to the subject (banks/qualifying holders/ third persons…) and seriousness of the misdemeanor. Bank of Slovenia also has the power to withdraw the authorization to provide banking services, authorization to acquire a qualifying holding and authorization to perform the function of member of a bank’s management board.