Administrative sanction and term of commitment as enforcement instruments at disposal of CVM

an analysis considering the effects of each instrument

Abstract

[Purpose] To identify the incentives that administrative sanctions and settlement agreements in sanctioning processes can create for aligning the behavior of regulated agents with the regulations governing the securities market. The aim is to contribute to the theoretical analysis of the regulatory choices to be made by the CVM between sanctions and settlements when faced with administrative violations.

[Methodology/approach/design] To achieve this goal, the study begins with the understanding that administrative sanctions and settlement agreements are both applicable by the CVM, interchangeably, for fulfilling its regulatory function. Based on this premise, it examines, drawing from the existing literature on the subject, the purpose of each of these instruments and the effects commonly associated with their use by the regulator.

[Findings] In the context of the securities market, the deterrent effect of administrative sanctions is enhanced by the regulations guiding the determination of penalties, as well as by the impact of potential administrative convictions on the regulated party's reputation. On the other hand, the CVM's limited capacity to enforce penalties may undermine the effectiveness of this instrument. The consensual approach, in turn, not only proves efficient in terms of the regulator's time and resource management but also allows for the compensation of losses incurred by harmed investors.