The head of enforcement at the Financial Conduct Authority (FCA) has denied that the dramatic fall in the total fines handed down by his organisation in 2016, when compared to the previous year, in any way signifies that the regulator has changed its approach.
Fines imposed by the FCA (and its predecessor the Financial Services Authority) rose every year between 2011 and 2014, peaking at a whopping £1.4 billion in 2014. Even in 2015, the total of all fines imposed by the regulator was still a sizeable £905.2 million. Yet in 2016, this figure reduced to £22.2 million, the lowest since 2007 and just 2.5% of the previous year’s figure. The 2014 and 2015 fines do of course include a number of large penalties against banks for manipulation of LIBOR and the foreign exchange markets.
Addressing the Practising Law Institute’s annual seminar on securities regulation in Europe, Director of Enforcement and Market Oversight Mark Steward commented on this issue by saying:
“Has light touch returned? Have we gone soft? For many of you today, the answer may be disappointing because it is a very clear ‘no’. We have not gone soft nor do we intend nor will we. Light touch has not returned.”
Mr Steward went on to talk about the Senior Managers Regime, which has been in force for almost a year in the banking sector, and will be introduced throughout the financial services industry in 2018. He summarised the idea of the Regime by saying:
“The regime embraces a very simple proposition – a senior manager ought to be responsible for what happens on his or her watch. This is what shareholders, consumers as well as the FCA really want.”
Linking back to his previous comments about the level of fines imposed by the regulator, Mr Steward conceded that “we don’t expect senior managers to agree so readily to pay high fines to resolve cases. We expect there will be more contest and more litigation.” His comments reflect the fact that most individuals who are subject to enforcement action will be hit harder by a large fine than if the penalty had been imposed on their firm.
Since Mr Steward made his remarks in mid-January, the FCA has in fact announced the imposition of a significant fine. Deutsche Bank was fined £163,076,224, more than seven times the total of all the 2016 fines, and the largest fine ever imposed by a UK regulator for anti-money laundering issues. Deutsche was fined a further $425 million by the New York Department of Financial Services over this issue.
Deutsche’s anti-money laundering arrangements failed to prevent certain customers transferring around $10 billion from Russia to offshore bank accounts in Cyprus, Estonia, and Latvia and other countries. The FCA said that these transfers were made “in a manner that is highly suggestive of financial crime.”
The FCA has also issued details of changes to its enforcement processes. Many of the changes will also affect the way the Prudential Regulation Authority conducts its work. Some of the main changes include:
• A commitment to providing more information to firms who are subject to formal investigation as to why they are under investigation
• A promise to provide more updates to firms during the investigation
• An undertaking that the Enforcement and Supervision teams at the appropriate regulator will liaise closely during the process of an investigation
• The publication of more detailed guidance on the process to be followed when the FCA and PRA conduct a joint investigation into a firm
• A system whereby a firm can ‘partly contest’ an FCA enforcement decision, agreeing to some elements of the regulator’s case against them whilst also contesting other parts of the decision with the Regulatory Decisions Committee. The level of discount the firm receives on any fine will reflect the extent to which they agreed with the FCA’s case against them
• The abolition of 20% discounts on fines for settling at Stage 2, or 10% discounts for settling at Stage 3 of the enforcement process. Firms wishing to obtain any form of discount must now settle at Stage 1, where the discount will remain at 30%
• A new system allowing firms to refer enforcement decisions directly to the Tribunal, without first making representations to the FCA’s decision maker
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.