Mark Steward, Executive Director of Enforcement and Market Oversight at the Financial Conduct Authority (FCA), spoke about the regulator’s powers to fine firms when he spoke at the City & Financial Global Ltd event in London in February 2020.
Mr Steward began with an observation that, whilst the principal aim of fining an authorised firm is to serve as a deterrent, the FCA also has a duty to ensure customers receive favourable outcomes. He commented that the firms who paid FCA fines totalling £310 million during 2019 were also required to pay £231 million in redress, so while a firm’s initial conduct may result in customers receiving poor outcomes, the FCA can instruct firms to pay compensation to ensure the final outcome is favourable to the customer.
Furthermore, Mr Steward said that a firm which did not take steps to compensate disadvantaged customers and/or failed to address the business practices that had led to enforcement action being taken could see the amount of their fine increase. Conversely, the fine might be lower if a firm put in place a comprehensive redress scheme at the earliest opportunity, and if it launched this remediation exercise on its own initiative and without being instructed to do so by the FCA.
The FCA director then commented that most firms who receive a fine have committed a serious breach of the Principles for Business, e.g. outcome 6, which relates to treating customers fairly, and outcome 7, concerning information provided to customers.
In the next section of the speech, he listed the main areas the FCA considers when deciding the amount of a fine. These include:
- Whether the transgression was deliberate and/or reckless
- The length of time for which the firm’s poor conduct lasted
- The level of monetary benefit the firm received as a result of its poor practice
- Whether the issue indicates wider issues with the firm’s systems and controls
- Whether the breach could impact the general economy, e.g. there could be an impact on confidence and trust in markets
- The extent to which the breach might have facilitated financial crime
Mr Steward then highlighted that there is no maximum fine. The FCA can impose an unlimited fine on any firm.
Returning to the issue of how most fines involve breaches of the FCA principles, the FCA director used an example relating to driving a car. He said that speed limits were clearly defined rules, but that FCA principles might be similar to the high-level requirement to ‘drive safely’. Mr Steward commented:
“Taking the command to ‘drive safely’ as an example, a prudent driver will use professional judgement, having been properly trained, not only on the need to arrive on time, but on how to get there, what the relevant road rules are and what the limits of the car might be.
“A prudent driver will also know the road and maintain a contextual awareness of the conditions, the weather and the traffic. Finally, a good driver will keep an eye not only on what is in the immediate foreground but also, with knowledge of relevant data, on what may be happening around the corner, all with both hands on the steering wheel.”
Mr Steward advised firms’ senior managers to approach a business activity by using the FCA Principles as their main consideration.
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