Settlements on the terms for extraordinary mitigation of sanctions imposed by KNF—are they working? | In Principle

For nearly three years, financial market entities have had the possibility of reaching a settlement on the terms for extraordinary mitigation of sanctions imposed by the Polish Financial Supervision Authority (KNF). During that time KNF has offered 29 settlements to businesses, only one of which involved complete waiver of a fine.

Settlements (układy) on the terms of extraordinary mitigation of sanctions were introduced into the Polish legal system under the 16 August 2023 amendment to the Financial Market Supervision Act. The main aim of such settlements is to facilitate the effective elimination of irregularities by financial market entities and to redress the harm done to investors. In some respects, such settlements play a role similar to “active penance” (czynny żal) as set forth in the Fiscal Penal Code. They also modify the rules for waiver of imposition of an administrative fine under Art. 189f §1 of the Administrative Procedure Code.

In January 2026 the Polish Financial Supervision Authority released information summarising settlement proceedings to date. In KNF’s view, the experiences so far have shown that “the institution of settlements is working and is needed.”

The communiqué also discussed the KNF practice to date in proceedings of this type, including the following:

• From 1 October 2023 (the date of entry into force of the provisions establishing the institution of a settlement on terms for extraordinary mitigation of sanctions), KNF had proposed 29 such settlements, three of which were not accepted by the respondents.
• In three cases, financial market entities undertook, under Art. 18k(5) of the Financial Market Supervision Act, to redress injury or, where possible, cure the effects of the infringement.
• Some entities had already reached more than one settlement with KNF.
• Most of the settlements involved fines, and the reductions in fines proposed by KNF ranged from 30% to 80% of the fine that would have been imposed if no settlement were reached.
• In one instance KNF waived the imposition of a fine altogether, when the financial market entity voluntarily admitted to a violation of the act which KNF had not previously been aware of.

Although this institution has a positive impact on the course of proceedings conducted by KNF, the legal literature and the case law have had little to say on the possibility of reaching a settlement under the Financial Market Supervision Act. This raises the question of when undertakings will be able to count on effective conclusion of a settlement with KNF.

In what types of proceedings can a settlement be reached with KNF?

The range of sanctions proceedings in which a settlement can be reached with KNF is limited. The types of proceedings are listed in Art. 18k(1) of the Financial Market Supervision Act. Based on that provision, settlement proceedings can be launched during the course of proceedings conducted by KNF for imposition of sanctions under that act or 24 other laws mentioned in Art. 1(2) of the act, namely:

1. Banking Law
2. National Bank of Poland Act
3. Covered Bonds and Mortgage-Backed Securities Act
4. Act on the Functioning of Cooperative Banks, Associations Thereof, and Associated Banks
5. Act on Organisation and Functioning of Pension Funds
6. Act on Employee Retirement Programmes
7. Act on Individual Retirement Accounts and Individual Retirement Insurance Accounts
8. Insurance and Pension Supervision Act
9. Capital Pension Act
10. Employee Capital Plan Act
11. Insurance and Reinsurance Activity Act
12. Insurance Distribution Act
13. Crop and Livestock Insurance Act
14. Trading in Financial Instruments Act
15. Act on Public Offerings and Conditions for Introduction of Financial Instruments into Organised Trading, and on Public Companies
16. Act on Investment Funds and Management of Alternative Investment Funds
17. Commodities Exchanges Act
18. Capital Market Supervision Act
19. Payment Services Act
20. Act on Supplementary Supervision of Credit Institutions, Insurance Companies, Reinsurance Companies, and Investment Firms in a Financial Conglomerate
21. Cooperative Savings and Loan Associations Act
22. Act on Mortgage Credit and Supervision of Mortgage Credit Brokers and Agents
23. Consumer Credit Act
24. Credit Servicers and Acquirers Act.

This list does not include all laws in Poland governing the financial market. A good example of a law outside the list is the Act on Mandatory Insurance, the Insurance Guarantee Fund and the Polish Motor Insurers Bureau.

What to do reach a settlement with KNF?

A settlement on terms for extraordinary mitigation of sanctions may be concluded:

• At the initiative of KNF, which in this case issues an order on the possibility of reaching a settlement, if it finds that this will expedite the proceeding or otherwise further the aims of financial market supervision
• At the request of the respondent—then KNF issues an order on the possibility of reaching a settlement or the impossibility of reaching a settlement.

A settlement may be concluded if the entity which is the respondent in the settlement proceeding:

• Has ceased violated the law or cured a state of legal non-compliance, including by performing an obligation which had not been performed on time, and
• Has disclosed to KNF all material circumstances concerning the infringement covered by the proceeding, including the individuals or other entities cooperating in the infringement, and has submitted evidence in support of these circumstances.

However, cessation of a legal violation or curing a state of non-compliance does not have to be tied to curing the effects of the infringement or redressing the harm resulting from the infringement. Under Art. 18k(5) of the Financial Market Supervision Act, however, the financial market entity seeking to reach a settlement with KNF may additionally promise to take such actions. Although such an undertaking is not mandatory, it could affect the extent of mitigation of the sanctions.

KNF’s latest communiqué and position

In its communiqué of 27 April 2026, KNF stated that the conditions for reaching a settlement, in the form of ceasing to violate the law or curing a state of legal non-compliance, should be carried out at an early stage of the proceeding, i.e. at the stage of the proceeding at the first instance, by the latest.

Therefore, ceasing to violate the law or curing a state of non-compliance only after issuance of a decision by KNF as the first-instance authority will no longer be grounds for initiating a settlement proceeding. KNF pointed out that it will be possible to initiate a proceeding of this time at a later stage only when new material circumstances have arisen in the case (unrelated to ceasing the violation or curing a state of non-compliance) making it difficult or impossible to achieve the aims of supervision in the sanctions proceeding.

Actions during the course of a potential settlement

If KNF issues an order on the possibility of reaching a settlement, it will set a deadline for reaching a settlement, which as a rule cannot be longer than three months. The settling entity must submit to KNF a declaration of its intent to reach a settlement, within 14 days after delivery of the KNF order. Up until that time, the respondent may withdraw its declaration at any time, and KNF may also withdraw its intention to reach a settlement.

During the course of the proceeding, the settling entity must submit a statement (under penalty of criminal liability) that it has presented all of the circumstances and evidence it is aware of concerning the infringement. An entity that has undertaken to cure the effects of the infringement or redress the resulting injury is also required to present information on the actions it intends to take, the manner and time for taking such actions, and the manner of securing the financing of such actions. In that instance, the settling entity must also declare that it is not aware of any barriers preventing performance of its undertaking.

After confirming that the entity meets the conditions for entering into a settlement, KNF will prepare a draft settlement and present it in the form of an order. In the order, KNF will set a period of at least 14 days for the respondent to reach a settlement. The settlement itself is concluded through submission by the settling entity of a declaration reading: “I hereby declare that I acknowledge in its entirety and without reservation the settlement in the matter of the terms for extraordinary mitigation of sanctions in accordance with the order of the Polish Financial Supervision Authority dated […], issued pursuant to Art. 18n(1) of the Financial Market Supervision Act of 21 July 2006 (Journal of Laws Dz. U. 2025 item 640).”

Submission of a differently worded statement will be ineffective and may give rise to serious consequences. If due to submission of a defective declaration the deadline set by KNF for accepting the settlement is missed, the authority may issue an order ending the activities aimed at reaching a settlement. This would be tantamount to failure to reach a settlement.

If the declaration is properly submitted, KNF is required to promptly issue a decision setting forth the provisions of the settlement. Such a decision is legally final upon issuance. This means that it cannot be reviewed by any other authority or administrative court.

What are the possible consequences of a settlement with KNF?

In a settlement, KNF may cut a fine by at least 20%, but no more than 90%, of what the fine would be if no settlement were reached.

In the case of other types of sanctions, KNF can reduce the harshness of the sanction. This may involve, for example, deciding not to withdraw a licence or impose an order. KNF may also decide not to impose an additional sanction and restrict itself to imposing an administrative fine on a given entity (in the full or reduced amount, as KNF decides).

The chances for a reduction of the fine grow if the settling entity reports the infringement to KNF on its own. Submission of such a report must be accompanied by ceasing the infringement or curing the state of non-compliance.

The notice must contain:

• Information on all material circumstances surrounding the infringement, including identification of cooperating individuals or other entities taking part in the violation of financial markets law
• Evidence showing cessation of the infringement in question or curing of the state of legal non-compliance prior to submission of the notice to KNF.

When notifying KNF of commission of an infringement, the entity may also request issuance of an order finding that it is possible to reach a settlement. In that case, KNF may reduce the fine under more advantageous terms, i.e. by at least 30% but no more than 90% of the fine that would have been imposed without reaching a settlement.

In reducing the amount of the fine or the severity of other sanctions, KNF must consider:

• The circumstances under which the settling entity ceased the infringement or cured the state of non-compliance, including whether it fulfilled the obligation on time or notified KNF of the infringement at its own initiative
• The scope and significance of the disclosure of all material circumstances of the infringement, including identifying the individuals or other entities cooperating in the infringement, as well as submission of evidence in support of these circumstances
• The scope of the undertakings to eliminate the effects of the infringement or redress the resulting injury, as referred to in Art. 18k(5) of the act, and the time when the settling entity performed them.

Moreover, if there are extraordinary mitigating circumstances, including that the settling entity has eliminated all effects of the infringement, the settlement may provide for waiver of any and all sanctions. But the act does not specify what circumstances KNF may regard as extraordinary. In this respect, the regulator should be expected to develop its own practice, but that is not yet known. To date KNF has waived all sanctions in only one case, where the entity reported the infringement to KNF on its own, while at the same time curing the state of non-compliance.

An entity that has reached a settlement is required to report to KNF regularly (at least once every three months) on whether it is performing the obligations undertaken in the settlement. Moreover, upon request from KNF, it must submit a timetable for performing the obligations undertaken in the settlement. And at any moment KNF may demand clarifications, information or documents connected with performance of these obligations.

If an entity that has reached a settlement fails to carry out the obligations undertaken in the settlement, or material defects are found in its performance, KNF may impose an administrative fine on the entity in the amount of:

• A maximum of PLN 10,000,000 in the case of legal persons or organisational units without legal personality
• A maximum of PLN 1,000,000 in the case of individuals.

Beyond this, KNF may impose an administrative fine in this case on a member of the management board of a legal person who is responsible for the infringement, of up to PLN 1,000,000.

If the settling entity fails to perform all or a significant portion of its settlement obligations, KNF may reopen the proceeding for imposition of sanctions, unless more than 10 years has passed since issuance of the decision setting forth the settlement.

Summary

Settlement proceedings represent a major step towards expediting proceedings before KNF. The institution of a settlement, which is attractive for the regulator and also for respondents, can also raise the rate of detection of infringements of financial market regulations. KNF practice so far shows that disclosure of legal violations at the infringer’s own initiative may even lead to a total waiver of penalties.

Nonetheless, the list of sanctions proceedings in which KNF can initiate the settlement process should be modified. It should include all of the laws—and not just selected laws—under which the Polish Financial Supervision Authority can impose sanctions on financial market entities.

Mateusz Kosiorowski, adwokat, Mateusz Muszyński, Insurance practice, Wardyński & Partners