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FSA hands out record fines

The Financial Services Authority smashed last year’s record fines by 21% this year as it handed down £33.1m in fines, says city law firm Reynolds Porter Chamberlain LLP.

RPC says there were eight £1m+ fines last year worth £27.5m, up 32% from £20.8m the year before when there were six.

Steven Francis, partner in RPC’s Financial Services team, says: “The FSA has delivered on its promise to get tough in response to the credit crunch – and it is getting tougher all the time.

“There has been a big inflation in the fines the FSA has imposed on financial services firms since the credit crunch started.”

According to RPC the average fine handed down by the FSA last year was up 59% on the year before to £788,571 from £497,455.

Francis, says: “Increasing the size of its fines might generate much needed political capital for the FSA but financial services firms are facing ballooning compliance costs that far and away dwarf the fines being levied.

“The FSA is an organisation that is able to set the level of fines it charges internally, without needing any kind of authorisation from the government or order from a judge.”

“Regulated businesses facing bigger and bigger fines deserve more transparency and predictability about how those fines are being set. The FSA should clarify how its fines are structured or it runs the risk of being seen as issuing arbitrary punishments based on political pressure. What is the maths behind how the fines are set?”

RPC says that financial services firms and individuals that cooperate with the FSA are entitled to a discount of up to 30% if they agree to a fine.

Of the 42 fines issued last year, 36 (86%) were settled at a discount and only six (14%) did not receive any discount.  All eight of the £1m+ fines were settled at a discount.

Francis adds: “There is a concern amongst financial services companies that FSA enforcement officers set the fine artificially high at first because they know that ultimately financial services firms prefer to cooperate and agree to a discounted fine.  

“By pumping up the fine the FSA can rake in the same amount of cash from the financial services company while reducing its own workload because the firm is cooperating.

“Even with the FSA setting bigger fines, financial services firms often still prefer to agree to a discounted fine because the cost of defending an aggressive investigation can be very high and there is still the risk of facing an undiscounted fine at the end of the investigation if they lose.”

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  • RW 3rd April 2010 at 2:57 pm

    Fines fines and more fines well done FSA (caugh) now get the market right and lets have a level playing field.

  • Salil Chaudhari 3rd April 2010 at 10:33 am

    As for the maths relating to setting out the fines. No doubt it would create certainty of financial obligations and an accurate figure for a contingent liability in the accounts of firms breaching FSA regulations. The difficulty is that no two cases are identical and each case would have diffents maths applied. I wish there was such a simple solution but in practice it would be cost prohibitive.

  • Robert Faull 2nd April 2010 at 1:16 pm

    I repeat myself: the FSA cannot be a true regulator because it depends on fines imposed on its members to fund the institution.

    As such, the FSA will always find a way to fine a member firm because it can then argue that member fees can be kept to a minimum.

    The only way this matter can be resolved is for the industry to coordinate a planned lobby of government, with the aim of exposing the flawed FSA bias business model and ask for a true regulator, if required, with the said regulator, funded by the public purse, thus removing the need to impose fines.

  • raj sodha 1st April 2010 at 2:27 pm

    I applaude the FSA for their excellent work and their fantastic performance. I think advisors should join me and contragulate them. By doing so, you will be on the right side of the FSA boffins and be eligible to get shares at a discount price when the FSA floats. Public, as usual should pick up class B shares. At least that way the advisors can cash in when the share prices rise as it would with year on performance in fines tounover!!Register here for the discounted shares…………….

  • Gordon Smith 1st April 2010 at 11:34 am

    Does this mean that regulation doesn’t work then?
    You would hope that a regulator who has been in authority as long would be levying no fines,or smaller fines the longer its in control,as by logicical deduction you would expect those being regulated by a long time regulator would understand the rules and regulations,and thus not be fined.Seems logical to me.
    Maybe the issue lies with the clarity of regulation,or the complexity of regulation,or,as I think with the regulator as a whole.
    I think the FSA is now just an old boys club,EXPECTING the regulated community to have deep pockets to pay for the old boys jaunts (and hotel fees)In reality the FSA fines the general public,and sharehaolders of big companies,(who pass the fines on)and they hit small brokers really hard.TIME FOR CAMERON TO KILL OFF BROWNS MONSTER……………I WONT MISS THEM.

  • Martin Benn 1st April 2010 at 11:31 am

    FSA’s Cash Cow – Is the FSA using Labour’s speeding tickets idea to raise revenue rather than making our advice roads safer? Using such a draconian approach as a cash cow undermines public confidence!

  • Martin Benn 1st April 2010 at 11:31 am

    FSA’s Cash Cow – Is the FSA using Labour’s speeding tickets idea to raise revenue rather than making our advice roads safer? Using such a draconian approach as a cash cow undermines public confidence!

  • Tony O'Sullivan 1st April 2010 at 11:03 am

    Record fines, the devil is in the statistic! I bet if the city law firm looked at the breakdown of this bumper year of fines it would not include any reasonable fines issue to the banks. The fsa will not bite the hand that feeds it. Until this anomaly is sorted the brokers will continue to be sacrifical lambs

  • Roy Ward 1st April 2010 at 10:59 am

    It’s a pity that there isn’t an organization who could fine the FSA for the way they did not adequately regulate the banking sector. The blame is always somewhere else!!

  • Baron Bolligrew 1st April 2010 at 10:59 am

    You’recorrect in your assumptions Mr Kingsley but you are also to modest in your praise of the FSA.
    Not only do they show a 21% increase in income during a time when the industry has been decimated but theya re now taking on about 300 more staff to increase the financial inspections on the much smaller number of advisers out there.
    Question for those in the know…Are we yet at the point where there are more people working on monitoring the advisers than there are advisers?

  • Baron Bolligrew 1st April 2010 at 10:56 am

    How dare you impune that the fines are inflated to pay for the 5* hotel costs or to allow for discounts?
    Don’t you realise that the FSA is doing a sterling (Freudian slip?) job in raising clients confidence in this industry by raising the standards to match those of the legal profession…yes, the very same industry that charges £6k to sort out a £250k cash estate…the very same industry that has charged £250k to a hospital to get £50k compensation for one of their clients…the very same industry that has cost the tax-payer £25million to prosecute, appeal, go to another court-case, etc, etc and jail criminals that stole £1.25 million…the very same industry that has been involved in some of the largest frauds this country has ever seen, including collusion with other highly-qualified professionals such as surveyors to carry out multi-million pound mortgage frauds.
    And this is where the FSA are encouraging us to set our sights is it?
    Ask anyone if they respect the legal profession and you will probably get ‘yes, I do respect them but I still think of them as vultures/crooks/etc’.

  • Ian Denny 1st April 2010 at 10:55 am

    It should also read “FSA hands out record salaries, bonuses and expenses to its self”

  • Baron Bolligrew 1st April 2010 at 10:51 am

    How dare you impune that the fines are inflated to pay for the 5* hotel costs or to allow for discounts?
    Don’t you realise that the FSA is doing a sterling (Freudian slip?) job in raising clients confidence in this industry by raising the standards to match those of the legal profession…yes, the very same industry that charges £6k to sort out a £250k cash estate…the very same industry that has charged £250k to a hospital to get £50k compensation for one of their clients…the very same industry that has cost the tax-payer £25million to prosecute, appeal, go to another court-case, etc, etc and jail criminals that stole £1.25 million…the very same industry that has been involved in some of the largest frauds this country has ever seen, including collusion with other highly-qualified professionals such as surveyors to carry out multi-million pound mortgage frauds.
    And this is where the FSA are encouraging us to set our sights is it?
    Ask anyone if they respect the legal profession and you will probably get ‘yes, I do respect them but I still think of them as vultures/crooks/etc’.

  • William Kingsley 1st April 2010 at 10:46 am

    What a great business model the FSA have that in a credit crunch they can show a 21% increase in income – they need the extra income from fines due to a lot of Brokers going out of business and they quite obviously need to maintain their jobs, lifesyles and choice of hotel.

  • Christopher Birchall 1st April 2010 at 10:33 am

    This article says it says it all and it does not take a genious to spot that the fine is inflated to allow a discount. The FSA should be selling double glazing. No I take that back, with double glazing firms we understand the game and the rules, they give an inflated price and we are expected to barter. The FSA are judge and jury on all issues. I can not understand why English law does not apply the Financial services.

  • Philip Whitworth 1st April 2010 at 10:26 am

    They have to pay for the hotel bills somehow!

  • Barry 1st April 2010 at 10:25 am

    Lets get real somebodys got to pay up for the FSA 5 star hotel treatmnet.

    Licence to print money.