FSA enforcement fines could treble in size

1 March 2010 | By Natalie Thomas

The Financial Services Authority has published a new policy on financial penalties, which could see enforcement fines treble in size.

Under the new framework of ’Enforcement Financial Penalties’, fines will be linked more closely to income and be based on:

- Up to 20% of a firm’s revenue from the product or business area linked to the breach over the relevant period;

- Up to 40% of an individual’s salary and benefits (including bonuses) from their job relating to the breach in non-market abuse cases; and

- A minimum starting point of £100,000 for individuals in serious market abuse cases.

The regulator says that its new policy supports the FSA’s ongoing commitment to the principle of credible deterrence and the improvement of standards within firms in relation to market misconduct and their dealings with customers.

The FSA also says that harder hitting financial penalties which better reflect the scale of a firm’s wrongdoing will become a feature of enforcement activity in future.

The framework comes after an industry-wide consultation after the publication of a consultation paper last July.

It is made up of the following five steps:

1. Removing any profits made from the misconduct;

2. Setting a figure to reflect the seriousness of the breach;

3. Considering any aggravating and mitigating factors;

4. Achieving the appropriate deterrent effect; and

5. Applying any settlement discount.

The policy statement also sets out a new policy in relation to when the FSA may reduce a fine because of its financial impact; and clarifies when the regulator may publicise enforcement action in criminal cases.

Margaret Cole, director of enforcement and financial crime at the FSA, says: “Despite industry opposition we have decided to implement these proposals as we believe enforcement penalties are a powerful tool to help change behaviour in the industry.

“We imposed record fines in 2009, but this approach further amplifies the deterrent effect of our penalties and sends a powerful message to firms which makes it clear that non-compliant behaviour will not be tolerated.”

She adds: “We have repeatedly seen breaches in particular areas where insufficient account has been taken of previous enforcement action.

“As well as delivering increased levels of fines, we believe that our new framework offers substantially more clarity and transparency around the penalty-setting process and will reap rewards in terms of an increase in compliant behaviour.”

The new penalty regime will come into force on March 6 2010 and will apply to any breaches which occur on or after this date.

Readers' comments (11)

Anonymous | 1 Mar 2010 11:55 am
How would the FSA fine a lender who has reported a loss of £6bn plus?
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Anonymous | 1 Mar 2010 11:58 am
We need to act now against the Food Standards Agency - Fancy fining all those poor farmers!
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Anonymous | 1 Mar 2010 11:59 am
It appears the FSA are going to reinstate the Final Salary Pension scheme for its employees, funded of course by fees imposed on member firms, secured by the FSA from some more 'Themed Visits': I wish I could control my income in the same manner by demanding more from my clients!
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Anonymous | 1 Mar 2010 12:08 pm
Good idea I bet the Food Standards Agency would make a better job than the Financial Services Authority!
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Anonymous | 1 Mar 2010 12:32 pm
Whats the point - the FSA never enforce the fines any way, 'it would cause them financial hardship if we enforce the fine'. What about the people who are suffering financial hardship as a result of the offenders actions?
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Anonymous | 1 Mar 2010 1:04 pm
Another statement of the extremely obvious by the FSA, which further damages their credibility. These policies should have been the cornerstone of any basic enforcement action from day 1. Appropriate appllication will be the next issue.
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Anonymous | 1 Mar 2010 2:43 pm
Bless 'em! I guess that they need to fund their productivity bonuses somehow!

I just wonder when they will start enforcing financial penalties on the banks...there soon won't be any brokers left!
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ian herbert | 1 Mar 2010 7:57 pm
every broker should cancel their permissions on the same day. Even if you aren't really leaving ( you can reverse the order) just to show the FSA that they could very well lose all their funding....I wish I would be there to see the panic??
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Robin Banks | 2 Mar 2010 9:26 am
FSA - they are having to increase fines becuase there are fewer people to fine - they will drive more and more out of the industry but I have always thought that's what they are trying to do anyway.
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Richard | 2 Mar 2010 7:05 pm
Judging by the FSA's list of "5 Steps", most of the banks should have been out of business long before the credit crunch struck, purely on the basis of the £Billions that they should have been fined for the mis-selling of PPI.

So we are supposed to believe that the FSA treats all authorised firms equally then, are we? Yeah, Right!!!

Clearly, if you are a large bank conning £Billions from your customers, then you can get away with a "small change" fine and a slap on the wrist, but if you are a small IFA or a mortgage broker, then you must be fined out of existence!
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