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.”