According to City law firm Reynolds Porter Chamberlain (RPC), to March 2011, RPC said there were 15 £1m+ fines last year worth £86.9m, up 216% from £27.5m the year before when there were eight.
“The FSA has now begun the internal reorganisation that will result in its replacement and these fines show that it is making every effort to go out with a bang,” said Jonathan Davies, partner in RPC’s Financial Services team.
“There has been a steady increase in the number and value of fines imposed since September 2008, but this is by far the biggest jump.”
A new FSA fines policy implemented last year could see the amount of fines treble again in future years as the rule change starts to feed through.
Since March 2010, fines have been calculated to levy up to 20% of a firm’s revenue made from the problem business area or 40% of an individual’s salary and benefits.
The regulator also set a minimum fine of £100,000 for individuals in serious market abuse cases, with the trail time on the cases we are seeing now at one to two years.
The good news for financial services firms is that financial fines are becoming so big, the regulator will shortly be able to fund itself through its own enforcement activity.
Financial services firms will pay 2% less to fund regulation than they did last year, despite a 10% increase in the funding requirement from £454.7m last year to £500.4m for 2011/12.
Jonathan Davies: “Reduced fees are only superficially attractive for financial services firms but as these result from higher fines that are sparking massive growth in compliance costs across the City they are a pyrrhic victory.”
“The reality for most regulated firms is that they are spending much more on ramping up their compliance culture than they are saving in lower fees to pay for the City watchdog.”
Under the new regime, with the FSA being split into two bodies, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), all but one of this year’s fine cases would come under the jurisdiction of the FCA.
Davies said: “A significant concern we hear from clients is that the two new regulators will compete with each other to set the highest fines, putting substantial upward pressure on the amount of fines the City gets hit with each year.”
According to RPC the average fine handed down by the FSA last year across all finance sectors was up 49% on the year before, from £739,284 to £1,099,159
Davies said although around half of the enforcement cases brought by the FSA result in a fine, all investigations result in firms incurring substantial professional costs.
