Fine tuning: a report on FCA fines in 2017, so far…
As we approach the mid-point of the 2017/18 financial year, Financial Conduct Authority (FCA) fine activity remains low, with just three fines imposed so far.
This follows a sharp drop in the number and quantum of fines in the 2016/17 financial year, despite a record number of investigations being opened.
It remains to be seen whether FCA fine activity will increase over the remainder of 2017/18.
In the 2017/18 year to date, the FCA has imposed fines on three individuals, totalling £191,900.
The first two are the former CFO and Financial Controller of Worldspreads Limited, a spread betting company. Both were found to have engaged in serious market abuse, in breach of s.118(7) of the Financial Services and Markets Act 2000, by deliberately and repeatedly disseminating false and misleading information relating to a holding company of Worldspreads Limited.
The two individuals were fined £11,900 and £105,000 respectively and are permanently banned from performing any function related to regulated activity.
The third was a compliance officer at wealth management firms FGS McClure Watters and Lanyon Astor Buller Ltd, who was fined £75,000 in July for breaches of the FCA Handbook’s APER Statement of Principle 6.
The FCA found that the officer had failed to take reasonable steps to ensure that the processes in place for giving advice on Enhanced Transfer Value pension transfer exercises were adequate and met regulatory standards. The individual’s failure to do so was said to have placed customers at risk of needlessly losing valuable benefits for their retirement.
The tables below show that in the last decade, until the last financial year, the number of fines imposed by the FCA on firms and individuals has steadily decreased, but the quantum of fines has generally increased.
The 2016/17 financial year saw a significant drop in the number and quantum of fines. If it were not for the £163 million fine imposed on Deutsche Bank for failed anti-money laundering controls (the largest fine ever imposed for anti-money laundering), total fines in 2016/17 would have been the lowest since 2007.
A soft touch?
The drop in fines coincides with some commentators suggesting that the FCA has softened its approach since Andrew Bailey took over from Martin Wheatley as Chief Executive Officer in early 2016.
The FCA has acknowledged the lower level of fines in its Enforcement annual performance account, released in July 2017 and discussed here but has emphasised that the years prior included exceptional fines related to LIBOR and FX misconduct.
It says that it remains committed to holding firms and individuals to account for misconduct and to ensure that wrongdoers pay for the costs of remediation.
Some potential reasons for the recent decreased fine activity include:
- A temporary lull in fines as the FCA adjusts its focus and resources following large scale LIBOR and FX manipulation cases.
- Large scale thematic reviews, which may eventually lead to enforcement activity.
- Fines against firms being reduced due to early settlements.
- Fewer fines against firms and an increased focus on individuals as the senior manager’s regime is extended. (Fines against individuals are generally lower than those against firms).
- The FCA may be increasingly using alternatives to fines, such as its restriction and suspension powers.
At the end of 2016, many commentators predicted that the low level of fines was an anomaly and that fines would increase in line with the FCA’s strategic priorities. In particular, anti-money laundering and market abuse were expected to be areas of increased enforcement activity.
The fines imposed in 2017 to date suggest otherwise. It remains to be seen what impact the recent changes to the enforcement process, introduced in March 2017, may have in terms of:
Permitting partial settlement of disputes in a focused resolution agreement.
The expedited route to the Upper Tribunal, bypassing the Regulatory Decisions Committee.
The changes to early settlement discounts.
Notwithstanding the statistics for this year thus far, which might create the impression of a more lenient approach by the FCA, we would caution firms and individuals against complacency in their regulatory obligations.
The FCA proposes to make changes in its penalty policy later in 2017 and a further update will be provided then.