New system of penalties and administrative sanctions for violation of Public Offering Act now before the Parliament

The bill would significantly raise the sanctions for violation of reporting obligations—to PLN 40 million or 5% of annual turnover. The Polish Financial Supervision Authority could also publish the names of persons violating the act.

The deadline for implementation of Directive 2013/50/EU, amending the Transparency for Listed Companies Directive (2004/109/EC), passed on 26 November 2015 (as we wrote about earlier on our portal).

In early December 2015 a bill to amend the Public Offering Act in this respect was submitted to the Sejm. The wording of the bill is the same as the proposal by the previous government and presented to the Sejm in November, but because of discontinuance between the old parliament and the new parliament, work could not be completed on the existing proposal.

This article is devoted to only a portion of the changes in the act, implementing the system of imposition of penalties and administrative sanctions for violation of regulations as provided in Directive 2013/50/EU.

The bill provides for introduction of a separate article on implementation of sanctions for violation of obligations covered by Directive 2004/109/EC. In its sanctions, the Polish Financial Supervision Authority (KNF) would be able to impose a fine on an obligated entity of up to PLN 40 million or 5% of the entity’s total annual turnover, or up to twice the amount of the profits gained or losses avoided because of failure to perform reporting requirements—whichever is higher.

The bill specifies the grounds that should be taken into account by the authority when imposing administrative sanctions. In determining penalties, KNF will take into consideration in particular:

  • Gravity of the breach
  • Reason for the breach
  • Financial situation of the entity
  • Scale of benefits obtained or losses avoided
  • Losses sustained by third parties in connection with the breach
  • Willingness of the entity to cooperate with KNF
  • Previous violations of the act.

The maximum amount of fines for violation of obligations under the directive is also increased in the case of individuals serving as members of the management board of a public company or investment fund, from PLN 100,000 to PLN 8 million. These sanctions could also be imposed on a member of an issuer’s supervisory board—this is new.

It should be added that so far the liability of investment funds for violation of obligations related to significant stakes of shares has been regulated by the Investment Funds Act, with an upper limit on this sanction of PLN 500,000. The bill provides for this liability to be moved to the Public Offering Act, with the upper limit of the sanction raised to PLN 8 million in the case of individuals and PLN 40 million in the case of other entities.

In addition, KNF would be authorised to publish not only the substance of the ruling and the nature of the violation, but also the identity of the individual or legal person on whom sanctions were imposed. However, KNF could refrain from publishing violators’ details if certain conditions are met.

Because obligations subject to sanctions under the Public Offering Act affect a broad range of capital market participants, taking various legal forms, the bill would also extend sanctions to cover shareholders who are entitled to represent an entity.

The bill has been submitted to the Sejm’s Public Finance Committee for its first reading.

Katarzyna Szoszkiewicz, Capital Markets Practice and Financial Institutions Practice, Wardyński & Partners