UK\'s Membership of EU and Its Impact

UK's Membership of EU and its Impact on Insider Trading

The European Union has recently introduced criminal sanctions in all its member countries in cases of market manipulation and insider trading. The new regulations are quite strict and are essential in reforming the financial markets. There are two directives Market Abuse and Criminal Sanctions [footnoteRef:1]and MFID [footnoteRef:2] have been introduced recently by EU in their pursuit to eliminate market manipulation and insider trading. [1: Criminal sanctions include fines up to £5million with a limit of the minimum amount of all the profits that are made through insider trading. ] [2: MFID stands for Markets in Financial Instruments Directive, this directive was introduced to protect insider trading dealings]

The criminal sanctions already exist in UK laws, however these sanctions are meant to have a greater impact on those member countries where leniency have been obtained in cases o insider trading and the punishment levels for market manipulation are low. The new sanctions can pose a systematic risk also because it can have a disruptive impact on the economy. The UK market is not much affected by the new directives because they already had similar approach in dealing with market manipulation and financial frauds.

EU directives have clearly stated that prison sentences would be given to those who are involved in insider trading. UK laws even before these directives had imposed strict penalties in cases of insider trading and have been judging many alleged people with prison sentences however that would have an impact on some countries like Estonia, Finland, Austria and Czech Republic, as that would be the first time when these countries would be taking such strict measures against insider trading and market manipulation.

EU Parliament has introduced the Market Abuse rules[footnoteRef:3]; they have created quite a panic in certain countries as financial frauds were not punished as severely in previous times. EU has ensured that financial frauds are served with severe punishments among all its 27 member countries. The main focus of Market abuse rules are market manipulation and insider trading. It is expected that these rules will take their complete effect by the end of this year. The main purpose of these regulations is to get rid of the insider trading and market manipulation activities in the member countries of European Union. [3: Market Abuse Rules includes strict punishment against white collar crimes to take strict measures against insider trading and market manipulation.]

The UK Labor Party has supported these laws and considers that "free for all"[footnoteRef:4] behavior of other member countries will be restricted through these directives. Many countries have been unable to tackle the unlawful practices but they will now have to comply with the new regulations that are imposed on them by European Union. This will help the UK market o get a fair chance as a whole to compete with other markets by having equal grounds for profits and opportunities. The new regulations imposed by EU are quite similar to the regulations that are imposed in the United States of America. The market abuse rule can prove to be extremely beneficial to the development of the economy. The UK's market performance is expected to improve as now they can involve themselves in making financial transactions with other member countries of European Union. [4: "Free for all" approach means that many countries have not acted in a way as they should have to tackle market manipulation and insider activities which has increased the number of financial frauds in those countries as they are not held accountable in that system.]

UK regularities have "sufficient resources" to implement the measures given by EU unlike some other countries who do not have the legal infrastructure to implement such regulations, however EU Directives have clearly mentioned that any negligence in the implementation of these directives could face heavy penalties and sanctions from EU.

The abuser of market regulations would be deemed to face heavy penalties which include a jail sentence of a time span between 2-5 years (depending on the level of crime committed). The accused will also have to pay heavy fines if he/she is proved guilty of insider trading. These fines will be at least 10 times of the amount involved in dealing with insider trading and market manipulation activities. European Union has also instigated the link between insider trading and high frequency trading[footnoteRef:5]. [5: High Frequency Trading has an inverse relation with insider trading as ]

Many critics are of the opinion that the financial frauds will surely find an escape route [footnoteRef:6] the lack of availability of the data of financial frauds and insider trading dealings makes it extremely tough for the law enforcing agencies to implement standard policies all across Europe. The criminal behavior of financial frauds will not be eliminated but they will shift to those countries where laws are less robust. [6: Escape route refers to the legal ways that financial frauds can find to escape the punishments as directed by the regulations.]