The guidelines apply to particular offences in connection with ad hoc announcements and voting rights notifications as well as financial reporting. For breaches committed before the entry into force of the legal changes and which have not yet been punished with an administrative fine, the WpHG Administrative Fine Guidelines of 2013 (see expert article WpHG Administrative Fine Guidelines dated December 2013) still apply.

The aim of BaFin's Securities Supervision Directorate is to make its assessment procedure for administrative fines in certain areas of particular importance understandable and transparent – more than two-thirds of all offences which lead to an administrative fine fall under the scope of the guidelines. In addition, the guidelines are intended to help ensure that similar offences are treated in the

Concept and scope

The now published supplementary version of the guidelines maintains the basic concept of the previous guidelines, in so far as this is legally possible and practicable. Nevertheless, because of the new legal requirements in place, modifications and reorientations were necessary at certain points. The contents of these are dealt with in greater detail in this article.

The WpHG Administrative Fine Guidelines II are subdivided into a general part and a detailed part. While the general part describes the scope of the guidelines and the general principles which apply to the assessment of administrative fines, the detailed part provides concrete explanations on how the administrative fines are assessed. Just like in the first version, the new guidelines include specific, fixed maximum fine amounts (betragsmäßige Höchstbeträge).

Unlike before, however, the WpHG Administrative Fine Guidelines II stipulate that, in stage one, the maximum fine amount must be determined. Assessment of the specific administrative fine within the meaning of section 17 of the German Act on Breaches of Administrative Regulations (Ordnungswidrigkeitengesetz – OWiG) is performed in stage two.

The WpHG Administrative Fine Guidelines II are essentially applicable to both legal and natural persons. The underlying duties continue to be essentially regulated for in the WpHG. It is merely the circumstances where a duty to make an ad hoc public disclosure of inside information arises that are no longer derived from the WpHG but instead derive directly from Article 17(1) of the European Market Abuse Regulation (MAR).

New upper limit of administrative fines

The upper limit of administrative fines (Bußgeldrahmen) for offences against the WpHG has changed fundamentally as a result of the Act Implementing the Transparency Directive Amending Directive and the First Act Amending Financial Markets Regulations, which has implemented several European laws into German law. At the core of the new provision is a mechanism that includes two or three alternative maximum fine amounts, depending on whether the accused party is a natural or legal person. The largest of these amounts is applied in each case.

Whereas heretofore, the WpHG provided for an administrative fine of up to EUR 200,000 for natural and legal persons who had breached the duty to publicly provide financial reports, for example, BaFin can now impose a fixed administrative fine of up to EUR 2 million for natural persons and up to EUR 10 million for legal persons, provided the turnover- or gain-based maximum fine amount is not even higher. We expect that the significant increase in the maximum fine amounts will create the deterrent effect which the European Commission, in particular, was aiming for. The respective addressees of the rule should therefore adjust themselves promptly and carefully to the new requirements.

In order to take account of the basic idea behind the new European provisions, German legislators have also significantly raised the upper limits of administrative fines for certain other duties which are not regulated in Article 28b of the Transparency Directive Amending Directive (TDAD) but which are associated with these. In the case of breaches of the duty to transmit accounting documents to the company register, for instance, (section 37v (1) sentence 4 of the WpHG), the maximum fine was previously set at EUR 50,000. BaFin can now impose administrative fines of up to EUR 500,000 for such breaches. For this reason, the base amounts were increased in the WpHG Administrative Fine Guidelines II compared to the first version of same. Just as before, they are to be applied uniformly to both legal and natural persons.

Turnover-based administrative fines

One of the key components of the new upper limit of administrative fines is the option of imposing turnover-based administrative fines on legal persons. This considerably expands BaFin's leeway in terms of the assessment of administrative fines: if an issuer with a total turnover of EUR 50 billion breaches the duty to make an ad hoc public disclosure, BaFin can impose an administrative fine of up to 2% of the relevant total turnover, i.e. up to EUR 1 billion. Heretofore, the maximum fine amount was EUR 1 million – irrespective of whether it was a natural or a legal person who committed the offence. In the case of breaches of the duties relating to voting rights and financial reporting, a turnover-based administrative fine of up to 5% of turnover is possible.

Orientation towards total turnover allows for a hugely increased consideration of companies' sensitivity to punishment, especially where particularly serious offences have been committed. This is because section 39 (5) of the WpHG stipulates that, for affiliated undertakings, it is total turnover (for the group) which must be considered, which means that significantly higher administrative fines are possible.
Relevant is the undertaking's total turnover in the financial year prior to the authority's decision. If the corresponding annual or consolidated financial statements are not (yet) available, the statements for the year before are to be used. This provides a practical solution in the event that BaFin must impose an administrative fine shortly after the end of a financial year. If the annual or consolidated financial statements for the prior year are not available either, BaFin may estimate total turnover.

Calculating the applicable base amount

Just as before, the second stage of assessment under the WpHG Administrative Fine Guidelines II primarily involves considering the circumstances of the offence and the offender.

The first step here entails determining the base amount. To this end, BaFin makes use of two criteria; the size of the issuer and an evaluation of the circumstances of the offence. The base amounts for the individual issuer groups and for the different categories of circumstances relating to the offence are shown directly in table format in the detailed part of the guidelines for the fixed maximum fine amounts. Owing to the statutory increase, the base amounts are significantly higher than before.

By contrast, there is no detailed information or even assessment tables for the turnover- and gain-based maximum fine amounts. Here, the appropriate administrative fine must be determined within the scope of the upper limit of administrative fines. When making its assessment, BaFin takes into account the degree of severity value judgement which is reflected in the nominal amounts, in particular in the case of especially serious offences. For less serious offences on the other hand, the administrative fine may differ significantly from this benchmark.

Six categories of issuer

The issuer concerned is categorised on the basis of several defined size categories. The key defining criterion in this context is still market capitalisation, as this is the usual and generally recognised figure used to value publicly traded undertakings. In general, the following applies: the more significant the issuer is for the capital market, the greater the potential interest of investors in transparency with regard to material facts.

Against the backdrop of the significantly increased upper limits of administrative fines, the WpHG Administrative Fine Guidelines II include six issuer groups, i.e. two more than the previous guidelines. This allows for a better differentiation within the scope of the expanded upper limits of administrative fines. The categories "EUR 10 million to 100 million" as well as "Over EUR 20 billion" are new. The former Group C was therefore divided into two groups while a further group was added above Group A.

Five degrees of severity

In addition to determining the correct issuer group, just as before BaFin also evaluates the specific circumstances of the offence and places these in different categories depending on their severity.
The WpHG Administrative Fine Guidelines II capture not only those circumstances which arise with above-average frequency when offences are committed but also atypical situations characterised by a significantly increased degree of wrongdoing and which require a special deterrent. To this end, the two new categories of "very severe" and "exceptionally severe" were introduced.

For particularly serious cases which are not to be categorised as regular in nature this is intended, in accordance with European legislation, to facilitate a convergence towards the respectively applicable upper limits of administrative fines and therefore allow sanctioning with more noticeable effects. The base amounts for less serious offences on the other hand are far lower. The guidelines continue to list many criteria for the evaluation of circumstances specific to each rule. However, this list should not be considered exhaustive.

Fixed base amounts per issuer group (financial reporting)

Fixed base amounts per issuer group (financial reporting) BaFin

Adjusting the base amount

Just as in the previous guidelines, the base amount can be adjusted in the second step of the administrative fine assessment if mitigating or aggravating criteria are present. These are now found in the general part of the guidelines. Cooperating with BaFin's investigations can have a mitigating effect, for example, while repeat offences may an aggravating effect. Finally, in the third step, the financial circumstances of the natural or legal person concerned come into play. The base amounts indicated in the guidelines are therefore usually not the same as the administrative fines that will actually be imposed.

The fact that an offence has been committed negligently or recklessly has been included for the first time in the guidelines as criteria which allow a mitigating adjustment. Certain provisions of European law, including Article 31(1)(b) of the MAR, allow the degree of responsibility of the party concerned to be considered when assessing the administrative fine. In the event of offences committed negligently or recklessly, where section 17 (2) of the OWiG can no longer be applied, i.e. where the statutory maximum fine amount cannot be halved (cf. section 39 (6a) of the WpHG), the Administrative Fine Guidelines therefore now allow for a mitigating consideration. In this way, appropriate outcomes are possible which reflect the basic idea behind section 17 (2) of the OWiG.

In light of the significantly increased base amounts, in everyday application of the guidelines consideration of the accused's financial circumstances is likely to become more important too. For groups of companies, this means: if a subsidiary committed the offence, it is the total turnover of the group which is to be considered when determining the applicable upper limit of administrative fines whereas in step three of stage two it is usually the current financial capacity of the subsidiary which will be looked at.

Calculating the administrative fine

Calculating the administrative fine BaFin

Reducing by way of settlement

Terminating the proceedings by common accord (settlement) during step two can also reduce the administrative fine. Based on BaFin's practice, a deduction of up to 30% is possible. The extent of the deduction depends significantly on the stage of the proceedings at which the settlement is reached.

The basis for a settlement is the principle of discretionary prosecution. The administrative authority has to conduct the administrative offence proceedings after due assessment of the circumstances of the case. For BaFin, the advantages of a settlement lie mainly in the fact that the administrative fine proceedings end sooner.

Outlook

The new maximum fine amounts give BaFin much leeway in order to impose adequate sanctions for particularly serious breaches of the law in future. The introduction of turnover-based administrative fines also enables tougher sanctioning of larger undertakings. In this way, the actual administrative fine imposed can reach the statutory upper limit where particularly serious offences have been committed. Since there are still numerous cases pending which fall under the regime of the old version of the guidelines, the tougher requirements of the European sanctioning regime will not achieve their full effect until later. However, even now BaFin has to announce decisions on administrative fines without delay, which means that market participants can inform themselves at any time about what kind of behaviour was considered to be an offence and how each offence was punished.

In the case of less serious offences, in light of the wide scope of the turnover-based upper limits of administrative fines BaFin has a responsibility to proceed with a sense of proportion and impose administrative fines which lie far below the statutory upper limit and the value judgement which is reflected in the fixed base amounts. This is because the less serious an offence is, the less affected the capital market is and the less appropriate is an administrative fine with a major preventive effect. In such cases, BaFin will take account of the factors of proportionality and weighing of consequences and make far less use of the full scope of the upper limits of administrative fines. In this respect, it may be appropriate to supplement the WpHG Administrative Guidelines II in due time with information on turnover-based base amounts and thereby ensure even greater transparency in turnover-based maximum fine amounts.