Securities Financing Transactions | Administrative Sanctions

The law of June 6^th 2018 on transparency of securities financing transactions (“Law”) implements provisions of Regulation (EU) 2015/2365 on transparency of securities financing transaction and of reuse (“Regulation”) relating to the imposition of sanctions for non-respect of the provisions of the Regulation.

The Law provides that the Commission de Surveillance du Secteur Financier (“CSSF”) and the Commissariat aux Assurances (“CAA”), where they are the relevant competent authority, can impose sanctions in case of violations of Article 4 or Article 15 of the Regulation.

A securities financing transaction or SFT includes repurchase transactions, securities or commodities lending or borrowing, buy-sell back or sell-buy back transactions and margin lending transactions. Pursuant to the Regulation counterparties to SFTs are obliged to report the details of the SFTs to trade repositories (Article 4). The Regulation also imposes conditions on the right of counterparties to reuse financial instruments received as collateral (Article 15).

Pursuant to the Law, the CSSF or the CAA have the power to impose sanctions in respect of breach of these provisions. In case of legal persons the CSSF or CAA may impose the sanctions on the members of their management board. The sanctions that may be imposed are the following:

1. an order requiring the responsible person to cease the conduct and to desist from a repetition of that conduct;
2. a public statement which indicates the person responsible and the nature of the infringement;
3. a temporary ban against any person discharging managerial responsibilities, or any natural person who is held responsible for such an infringement, from exercising management functions;
4. maximum administrative sanctions of at least three times the amount of the profits gained or losses avoided because of the infringement where those can be determined by the relevant authority, even if those sanctions exceed the amounts referred to in points (e) and (f);
5. in respect of a natural person, a maximum administrative sanction of at least
   EUR 5 000 000;
6. in respect of legal persons, a maximum administrative sanction of at least:

(i) EUR 5 000 000 or up to 10 % of the total annual turnover of the legal person according to the last available accounts approved by the management body for infringements of Article 4 of the Regulation;

(ii) EUR 15 000 000 or up to 10 % of the total annual turnover of the legal person according to the last available accounts approved by the management body for infringements of Article 15 of the Regulation.

The Law also amends the law of December 17^th 2010 relating to UCITS and the law of July 12^th 2013 on alternative investment managers to provide that the CSSF is competent
to issue sanctions and other administrative measures against UCITS, management companies and their depositaries and AIFMs in case of breach of Articles 13 and 14 of the Regulation which set out the rules on transparency concerning SFTs and total return swaps in periodical reports and pre-contractual documentation such as prospectuses.