Publication date: 11.07.2024
Liability for violation of investment services rules
Investment services are an important component of the financial market, contributing to capital raising and economic development. Compliance with the established rules and standards in the field of investment services is critical to protecting the interests of investors and ensuring the stability of the financial system. In this article, we will consider the main aspects of liability for violation of the rules for the provision of investment services, the regulatory framework, types of liability and the procedure for bringing to liability.
The regulatory framework
Investment services in Ukraine are regulated by several key legal acts:
TheLaw of Ukraine "On Capital Markets and Organised Commodity Markets":
- The main law regulating activities in the capital markets establishes requirements for the provision of investment services, rights and obligations of market participants, as well as liability for violations of legislation in this area.
Law of Ukraine "On Financial Services and State Regulation of Financial Services Markets":
- Defines the legal framework for the provision of financial services, including investment services, establishes requirements for financial institutions, the procedure for licensing and control over their activities.
Law of Ukraine "On Protection of Consumer Rights":
- Defines the legal framework for the protection of consumers of financial services, establishes consumer rights, obligations of service providers and the procedure for handling consumer complaints.
Civil Code of Ukraine (CCU):
- Regulates contractual relations between investors and investment service providers, defines the rights and obligations of the parties, and mechanisms for protecting investors' rights.
Code of Administrative Offences of Ukraine (CAO):
- Provides for administrative liability for violation of the requirements of the legislation on investment services, non-compliance with the standards and rules of activity in the financial markets.
Criminal Code of Ukraine (CCU):
- Establishes criminal liability for crimes in the field of investment services, including fraud, misleading investors and other offences.
National Securities and Stock Market Commission (NSSMC):
- A regulatory body that supervises and controls the activities of capital market participants, including investment service providers.
Major violations of the rules for the provision of investment services
The main violations of the rules for the provision of investment services may include:
Illegal activities:
- Provision of investment services without an appropriate licence or permit, which is a violation of the law and subject to administrative or criminal liability.
Failure to complywith disclosure requirements:
- Failure to provide or provide inaccurate, incomplete or false information about investment services, risks associated with investments, terms of contracts, etc.
Fraud and market manipulation:
- The use of unfair methods to gain profit, including manipulation of market prices, misleading investors, misappropriation of client funds, etc.
Conflict of interest:
- Failure to disclose a conflict of interest that may affect an investor's decision or use confidential information for personal gain.
Failure to comply with therequirements for the protection of client funds:
- Violation of the rules for the storage and management of client funds, which may lead to investment losses or abuse.
Types of liability for violation of investment services rules
Violations of the rules for the provision of investment services may result in various types of liability: administrative, civil and criminal.
Administrative liability:
- Administrative liability is incurred for violations of the requirements of the investment services legislation, non-compliance with the standards and rules of operation in the financial markets. Sanctions may include fines, warnings, and temporary suspension of a business entity. Such violations are subject to fines ranging from 10 to 200 tax-free minimum incomes, and in case of repeated violations - up to 500 tax-free minimum incomes.
Civil liability:
- Civil liability arises in the event of material or moral damage to investors as a result of improper provision of investment services. Investors have the right to claim damages through the courts. Liability may include compensation for pecuniary damage (lost investments, lost profits, etc.) and non-pecuniary damage (psychological stress, humiliation).
Criminal liability:
- Criminal liability is incurred for committing crimes in the field of investment services, such as fraud, misleading investors, which led to serious consequences for the financial condition of investors or the economy. Sanctions may include fines, imprisonment, and a ban on engaging in certain activities. Such violations are punishable by fines of 500 to 2,000 tax-free minimum incomes or imprisonment for up to 10 years.
Procedure for bringing to liability
The procedure for bringing business entities and their employees to liability for violations of the rules for the provision of investment services depends on the type of violation and the form of liability:
Administrative procedure:
- Administrative offences may be detected during inspections by regulatory authorities (the NSSMC, the National Bank of Ukraine, the State Financial Monitoring Service) or following complaints from investors. If violations are detected, an administrative report is drawn up and reviewed by the competent authority. After reviewing the protocol, a decision is made to impose administrative sanctions.
Civil procedure:
- In the event of material or moral damage, investors may file a lawsuit for damages. The court examines evidence of improper provision of investment services, hears witnesses, and conducts expert examinations to determine the amount of damage. The court decides on the compensation of losses.
Criminal procedure:
- In the event of crimes in the field of investment services, victims or other interested parties may file a complaint with law enforcement authorities. Law enforcement agencies conduct investigations, collect evidence, and question witnesses and suspects. If the fact of a crime is established, the case is referred to the court for consideration. Legal marketplace "CONSULTANT" will help you solve any problem! All the necessary services at any time: analysis of documents, legal analysis of the situation, legal analysis of the situation, written advice, verification of documents by a lawyer, legal analysis of documents, legal opinion of a lawyer, legal opinion of a lawyer, legal analysis. Are you looking for an online lawyer or a lawyer online? Choose CONSULTANT - a lawyer is always at your side!
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