Jun 09 2009 Martin Coyle
The financial services industry was hit with a record £27.3m in Financial Services Authority fines last year, a jump of 514 per cent, according to law firm Reynolds Porter Chamberlain. The firm said that the number of fines was likely to increase in the coming year. RPC said that the number of fines handed out to miscreant firms and individuals in the year to March 31 jumped massively, even without taking into account the impact of the financial crisis. Any fines likely to arise from the credit crunch will not feed through until next year, RPC predicted.
The regulator doled out a record 55 fines up until April, while it also prohibited 46 firms or individuals, more than it had for all previous years put together. The average fine meted out was £497,000, compared to £212,000 the previous year. Even after taking out fines of more than £1m, the average fine amount rose by 20 per cent to £133,000.
Jonathan Davies, partner at RPC, told Complinet that the figures were a huge jump and pointed to recent statements from the FSA which suggested that it wanted to increase the magnitude of fines.
"None of these can be explained by failing financial institutions or the credit crunch because the average time for the relevant event to final notice is about a year. We could certainly expect a further increase in the number of fines next year," he said.
Davies said that one of the factors relevant to the size of FSA fines was the ability of firms' to pay. This could be a factor in the coming year, he said.
"There have been a couple of cases where firms were merely censured. What the FSA seems to do is not want to impose a trivial fine. It simply comes out with a public censure with the covering statement that the only reason it did not impose a large fine was because the firm could not afford it," he said.
Davies noted that the FSA faced significant public and political pressure this year after largely failing to foresee bank failures. This has led to its get tough approach, he said. He added that one of the risks that the FSA faced was that it could reject a focused approach in favour of securing hits against any target it could. There is industry concern that the regulator could waste resources by adopting a scatter gun approach and hitting firms for minor transgressions, he said.
Some of the fine "highlights" in the period include the whopping £7m fine imposed on Alliance & Leicester in October for serious failures in its payment protection insurance sales, the £5.25m hit on Aon for failures in its bribery systems and controls in January, and the £5.6m penalty for Credit Suisse for systems and controls failures.
In March 2009 Hector Sants, FSA chief executive, announced a shift in FSA approach to enforcement. The change has seen the regulator take on more criminal cases in relation to market abuse and insider trading.
"There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA," he said.
