Regulatory fines hit £1.47bn in UK

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The UK Financial Conduct Authority increased its regulatory penalties by 2.5x in 2014, taking the total paid out by the financial services industry to £1.4bn (€2bn), according to a report published by Kinetic Partners, a division of Duff & Phelps.

Other key points noted include:
• Individuals were fined a total of £2.9m by the UK’s financial services regulator in 2014, down from £4.99m in 2013;
• The FCA imposed 46 fines during the 2013/14 fiscal year – down from 51 issued by the FCA’s predecessor, the Financial Services Authority (FSA), in 2012/13 and 83 in 2010/11;
• Average values of fines issued by the FCA in 2014 were two and a half times higher than in 2013, at £36.79m compared to £9.88m in 2013. This is indicative of a trend in recent years, as the average monetary sanction has increased by more than 1,800% since 2009, when the average FSA fine was £20.7m.

Monique Melis, managing director and global head of Regulatory Consulting at Kinetic Partners, said: “2014 saw a significant spike in the severity of financial penalties virtually across the board, as regulators have been getting tougher on both firms and individuals. However, the averages only tell part of the story as they have been pushed up by a relatively small number of historic fines, mainly relating to Libor and Forex manipulation. We are now entering an era of regulatory enforcement in which the ‘new normal’ consists of exceptionally severe penalties and a growing focus on individual bad actors, the aim of which is to impact and change the culture of firms.”

The trend is set to continue in other jurisdictions too, the report suggests.

In the US, the Securities and Exchange Commission issued a record number of enforcements in 2013/14 at 755, up from 686 in the previous fiscal year. Penalty values increased too, with SEC sanctions of $4.6bn in 2013/14 against $3.4bn in 2012/13.

In Hong Kong, the Securities and Futures Commission issued HK$62.8m (€7.2m)in fines in 2014, compared to HK$40.7m (€4.7m) in 2013.

Julian Korek, head of Compliance and Regulatory Consulting at Kinetic Partners, added: “Actions against individuals are likely to play an increasingly integral role in regulators’ efforts to deter bad behaviour. Such sanctions are an undeniably powerful deterrent as, unlike financial penalties imposed on firms, they cannot be written off as a business cost. Regulatory leadership in the UK recognises that an organisation’s senior management is not necessarily able to police staff at all levels, so holding the bad actors themselves accountable is a step towards influencing institutional culture in the right direction. However, there is also a real risk that the targeting of individuals could reduce the attractiveness of financial services as a career. As always, it is a balance that regulators need to strike.”

Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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