10 Colum. J. Eur. L. 561 (2004)

David Kanarek, J.D., 2004, Columbia University Law School; M.B.A., 2001, Rutgers Graduate School of Management; B.A. summa curn laude, 2000, Rutgers College.

Susan Collier, J.D. Candidate, 2005, Columbia University Law School; B.A., 1999, University of California, Berkeley.

Unlike the United States, Europe has no uniform penalties for securities violations. Traditionally, European securities regulations were much less stringent than those in the United States. Practices condemned in the United States, such as insider trading, were considered an ordinary part of business in Europe and integral to promoting competition in European countries. As markets have become increasingly global, however, discrepancies in securities regulations between countries have come under close scrutiny. Accordingly, pressure from the United States to penalize violators of securities regulations has changed the way violations are viewed in Europe. Over the last few decades, and more strikingly in the past few years, the European Union has implemented a number of directives designed to discourage practices such as insider trading. The directives, although worded strongly, do not spell out penalties for securities violations, but rather leave penalties and enforcement mechanisms to the Member States. While the principle of subsidiarity justifies this decentralized approach, the lack of generally applicable standards has two major detrimental effects. First, it impedes harmonization of securities regulations among European states. Second, it hinders increasing the gravity with which securities violations are viewed in Europe.

Because there is no harmonized regulation, the state of mind requirement set by the European Union is merely a recommendation for the Member States. In the 2003 Directive on market abuse, (“2003 Directive”), the Commission specifies that to violate a securities law in Europe, the actor must or should have known that he was violating the regulation. The “knew or should have known” standard acts as a threshold standard for the Member States. Each state is free to impose more stringent requirements for securities violations, but the minimum state of mind requirement for violations is knowledge.