What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
Banking & Finance
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.
Sanctions related to financial services may be imposed on credit institutions, executive officers, employees and owners, ranging from preventive measures, restorative-, repressive sanctions to measures applied for managing prudential risks. At minor prudential risks the HNB may order credit institutions to comply with prudential requirements, eliminate uncovered deficiencies, advise credit institutions to provide further training to its employees or to hire employees with appropriate professional skills, elaborate code of conduct, internal regulations and/or declare the fact of infringement, order the cessation of infringement and prohibit further infringing activities. At major prudential risks the HNB may order credit institutions to cut expenses on operation, set sufficient reserves aside, prohibit, limit or make subject to conditions the payment of dividends, the payment of remuneration of executive officers, the provision of financial services. Amongst exceptional measures the HNB may order the sale of assets used for purposes other than banking, may limit or prohibit the credit institution to conclude transactions between the owners and the credit institution, payment of deposits or funds, determine the highest rate of interest, order the executive board to convene the general meeting or may appoint a supervisory commissioner.
Beside measures, credit institutions, executive officers and employee may be subject to fines. The amount of the fine may be imposed on the inspected credit institution and shall be between HUF 100,000 and HUF 2 billion. As for executive officers the amount of the fine shall be between HUF 100,000 and HUF 500 million. Employees shall be subject to the amount of the fine shall be between HUF 20,000 and HUF 20 million.
Sanctions that the national regulator – the FCMC – may order vary in their scope and effect on the banks, as well as the degree of violation of baking regulations.
If the FCMC detects that a bank does not comply with the requirements of the Credit Institutions Law of the Republic of Latvia, the CRR, the directly applicable laws and regulations issued by the EU authorities or the requirements of decisions or regulatory provisions issued by the FCMC, or if activities of the a bank endanger the stability or solvency thereof, the security or stability of the sector of banks of Latvia, threatens to cause significant losses to the national economy, or if an excessive outflow of deposits or other outside funds from the bank takes place, the FCMC is entitled to carry out one or more of the following activities by taking a decision:
- to give binding written instructions to the administrative bodies of the bank, their managers and members, which are necessary for the prevention of such situation;
- to impose restrictions for the rights and activities of the bank, including completely or partially suspend the provision of financial services, as well as to lay down restrictions for execution of liabilities;
- to appoint one or more authorised persons of the FCMC in the bank;
- to require the bank to narrow down or restrict commercial activities, the network of activity or entities, abandon the areas of activity, which pose excessive threat to its stability;
- to require the bank to reduce the risks inherent to its activity, products or systems;
- to require the bank to determine such restriction on the variable remuneration of officials and employees, which is expressed as percentage of net income and allows the bank to maintain a stable capital base;
- and others.
As a general rule, the Bank of Lithuania can apply enforcement measures against financial market participants under supervision as well as other persons. The nature and type of sanctions depend on violation type and field.
The Bank of Lithuania is granted with an authority to take the following actions:
- to warn banks when their activities may lead to, or are in violation of, banking standards and prescribe the time period during which deficiencies or violations must be corrected;
- to impose administrative fines;
- to suspend or revoke a bank's license, or restrict one or more of its operations;
- to suspend or revoke the license of a bank's branch operation;
- to request the removal or remove from office a member(s) of the bank's board or its head of administration;
- to request the suspension or suspend the powers of a member(s) of the bank's council;
- to suspend the powers of the bank's council, remove from office the entire board of the bank and its head of administration and appoint a bank administrator (and, if necessary, his/her deputies);
- to establish restrictions on disposal of the bank's account(s) opened with the Bank of Lithuania; and to revoke the license of the bank;
- other actions specifically listed in the law.
The Polish FSA may impose the following sanctions:
- prohibit the paying of a dividend;
- send to the supervisory board of a bank a request for the recalling of any management board member who is responsible for any violation of banking regulations;
- suspend any management board member who is responsible for any violation of banking regulations;
- limit the scope of operations of a bank or any of its organizational units;
- impose a fine of up to 10% of a bank’s income;
- withdraw a banking license.
The Polish FSA may also impose fines on the relevant members of the management board of a bank of up to PLN 20,000,000.
The sanctions that may be applied in the case of a violation of banking regulations:
- written warning;
- a public warning;
- a fine applicable to the legal person, up to 10% of the total net turnover value of the preceding business year, including gross revenue consisting of interest receivable and other similar income, income from shares and other variable or fixed yield securities , as well as the fees or charges to be collected as provided in article 316 of the European Regulation no 575/2013; where the legal person is a subsidiary of a parent, the relevant gross income is that resulting from the consolidated financial statements of the highest ranking parent company in the preceding business year;
- a fine applicable to the natural person;
- the withdrawal of approval granted to the members of the board of directors and the directors or, where appropriate, the members of the supervisory board and the directorate;
- a fine up to twice the value of the benefit obtained by committing the deed, if it can be determined.
Separately, certain sanctioning measures can be applied in the case of a violation of banking regulations.
The RBI issues direction from time to time to ensure compliance with the banking statutes and rectify non-compliance, if any. In the case of non-compliance with regulatory requirements, the RBI may impose a variety of sanctions, including fines, orders for the suspension of a bank’s business and cancellation of a bank’s business license.
Where a contravention or default has been committed by a company, every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company, for the conduct of the business of the company, as well as the company, will be deemed to be guilty of the contravention or default and will be liable to be proceeded against and punished accordingly. The quantum of the fine varies from INR 50,000 (approx. USD 750) to INR 1,00,00,000 (approx. USD 1,50,000) depending on the nature of violations.
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.
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, 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 determined;
- 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 subsidiary 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.
Section 64 of the BOFIA empowers the Governor to impose a fine penalty or suspend the licence issued to a bank or any other financial institution for the bank's/financial institution's failure to comply with any of its rules, regulations, guidelines or administrative directives made, given or issued by the CBN.
In case of violations of the banking regulations the NFSA may issue an order that the violation shall cease. In case the violating party does not respond to the cease order, the NFSA may impose administrative coercive fines. Intentional or negligent violation of the banking regulation is also subject to criminal sanctions such as fines and imprisonment up to 1 year.
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.
The QCB Law provides that, without prejudice to the financial penalties imposed by the QCB under the provisions of this law and the bylaws, regulations and resolutions issued in implementation thereof, or any more severe sanction provided for by any other law, the QCB shall apply sanctions on banks for offences described therein.
For full list of the sanctions on violating persons, please check: http://www.qcb.gov.qa/English/Legislation/Instructions/Documents/BankInstructions/2013/11.pdf
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, required 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 Department 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.
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:
- the liabilities of the bank are likely to exceed its assets or the bank does not comply with the liquidity requirements;
- the profitability of the bank is not sufficient to reliably perform its activities due to the impaired balance between its income and expenses;
- the equity capital of the bank is or is likely to be inadequate pursuant to the capital adequacy requirements;
- the quality of the assets of the bank has deteriorated in a manner to weaken its financial condition;
- 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;
- the bank fails to establish internal systems units in an efficient and sufficient manner; or
- 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:
- such bank fails to implement the measures imposed by the BRSA in a timely manner;
- the financial condition of such bank is not recovered despite the implementation of the measures and sanctions imposed by the BRSA;
- the BRSA is of the view that the financial status of the respective bank will not improve even if certain measures and sanctions are implemented; or
- 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.
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.
In case of violation of the CIA, Regulation 575/2013, acts on their application, the monetary sanctions for individuals reach up to BGN 4,000, for legal entities – up to BGN 20,000, and for banks/financial holdings – up to BGN 200,000. Higher sanctions apply in case of repeated violation.
In case of specific violations, such as for example:
- failure to obtain preliminary approval by BNB when a person intends to acquire qualifying participation in a bank or when reaching/exceeding 20, 33 or 50 per cent participation (as discussed in the answer to Question 15 above);
- failure to notify BNB when a shareholder intends to reduce its participation below the thresholds per (1) above;
- failure to notify BNB when a bank ceases to be a subsidiary of another legal entity;
- failure to notify/provide timely specific information to BNB, incl. about intra-group financial support;
- money laundering;
- provision of false or incomplete or inaccurate accountancy and financial information to BNB;
- non-compliance by a bank with the LCR requirement under Art. 412 of Regulation 575/2013;
- failure to prepare, maintain and update banking recovery and resolution plans;
- failure to notify BNB when a bank is (likely to become) problematic;
and in other cases as provided by law, monetary sanctions could reach the amount of up to €5,000,000 for an individual, and up to 10 per cent of the annual turnover, including gross income, for a legal entity.
Apart from the above, BNB may withdraw a banking license on different grounds – e.g. in case a bank has not started operating within twelve months, or provided false information/used other illegal means for the issuance of its license, etc.
The Monetary and Financial Code establishes three types of infringement that financial institutions can incur on, the sanction will be imposed depending of the type of infringement. For a Very Serious Infringement, a fine up to 0.01% of the assets of the financial entity can be imposed, the removal of the current administrator and the revocation of the license; for a Serious Infringement, a fine up to 0.005% of the assets of the financial entity can be imposed, the suspension of the administrators up to a 90-day term and a warning; for a Minor Infringement, a fine up to 0.001% of the assets of the financial entity can be imposed. The minimum fine that can be imposed cannot be lower than 30 Minimum Legal Wages (For year 2017 USD 11,250.00)
Part IIIC of the Central Bank Act 1942 of Ireland (as amended) and Regulation 54 CRRI provide the CBI with the power to impose sanctions in respect of regulatory breaches by regulated financial service providers and by persons concerned in their management who have participated in the breaches. These include:
- caution or reprimand;
- a public statement that identifies the natural person, institution, financial holding com-pany or mixed-financial holding company responsible, and the nature of the breach concerned;
- an order requiring a natural or legal person responsible for the contravention to cease, and desist from, the conduct concerned;
- direction to refund or withhold all or part of money charged or paid, or to be charged or paid, for the provision of a financial service by a regulated financial service provider;
- suspension of the voting rights of the shareholder or shareholders held responsible for the contraventions;
- administrative pecuniary penalties of up to twice the amount of the benefit derived from the contravention where that benefit can be determined;
- direction to pay to the CBI a financial penalty (not exceeding the greater of €10,000,000 or 10% of turnover where the regulated financial service provider is a body corporate or an unincorporated body and not exceeding €5,000,000 where the regulated financial service provider is a natural person concerned in the management of a regulated finan-cial service provider);
- in the case of a regulated financial service provider which is not authorised by the ECB under the SSMR, suspension or revocation of the authorisation of that regulated finan-cial service provider;
- in the case of a regulated financial service provider which is authorised by the ECB un-der the SSMR, the submission of a proposal to the ECB to suspend or revoke the au-thorisation of that regulated financial service provider;
- in the case of a natural person, a direction disqualifying the person from being con-cerned in the management of a regulated financial service provider for a prescribed pe-riod of time;
- direction to cease a contravention, if it is found the contravention is continuing;
- direction to pay the CBI all or part of its costs incurred in an inquiry/investigation.
The enforcement committee of the ACPR could order two different natures of sanctions:
- prohibition from conducting certain operations for a maximum period of ten years and any other restrictions on the conduct of its activity,
- temporary suspension of senior managers for a maximum period of ten years,
- compulsory resignation of senior managers,
- partial or total withdrawal of the license or authorisation and being struck off the list of authorised entities
- 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”.
Together with possible civil and contractual sanctions on transactions that were operated in breach of financial regulation, a wild array of criminal penalties and administrative fines (Book V of the Banking Act) can be imposed.
In the event of a failure to comply with or inappropriate compliance with the CIA or precept issued pursuant to CIA or another administrative act, the FSA has the right to impose a penalty payment. In the event of a failure to comply with or inappropriate compliance with an administrative act, the upper limit for a penalty payment is, in the case of a natural person, up to 5,000 euros for the first occasion and in the subsequent cases up to 50,000 euros to enforce the performance of one and the same obligation but no more than 5,000,000 euros altogether, and in the case of a legal person, up to 32,000 euros for the first occasion and up to 100,000 euros in each subsequent occasion to enforce the performance of one and the same obligation but no more than for 10% of the net annual turnover of the whole legal person, including gross income.
When it comes to violation of the prudential ratio, failure to submit information, violation of procedure for settlements, violation of obligation to maintain confidentiality of information subject to banking secrecy, violation of procedure for acquisition of qualifying holding in bank, the punishment can be a fine of up to 32,000 euros.
Notwithstanding the potential civil and/or criminal liability that may arise, an infringement of the banking regulations may trigger the imposition of one or more of the following administrative sanctions by the BoG according to the provisions of Law 4261/2014:
- issuance of public announcement specifying the infringement and the person liable for the infringement,
- request to the person liable for the infringement to cease the infringement and refrain its commission in the future,
- fines up to 10% of net turnover (if the infringement was committed by a legal entity) or the amount of € 5million (if the infringement was committed by an individual), in case the benefit gained out of the infringement is subject to quantification, fines that are equal to double the value of such benefit.
The authority of the BoG extends to the adoption of corrective measures such as removal of the liable persons from the board of directors of the credit institution, the suspension of voting rights and the prohibition of certain transactions.
The BoG or the HCMC shall cooperate with other authorities in Greece and/or in the EU, in order to ensure the effective imposition and implementation of such sanctions.
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 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.
A person that carries out any financial regulated activity or that collects resources from the public without prior authorization from the Superintendence of Finance is liable to imprisonment and economic sanctions for engaging in a criminal offence. Some examples of activities characterized under the Colombian Criminal Code are fraudulent use of resources collected from the public, collecting resources from the public without authorization, fraudulent manipulation of securities and others. The sanctions vary and can be fines of around fifty thousand minimum wages and imprisonment up to 240 months.
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.
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).