– Fines set to rise further next year as new penalties policy bites
– Tip of the iceberg as financial services firms spend unseen hundreds of millions in additional compliance work defending themselves against FSA investigations
The FSA handed down a record breaking £88.4m in fines in 2010 (to December 20), eclipsing the record it set last year of £34.8m by 154%, says City law firm Reynolds Porter Chamberlain LLP (RPC).
RPC says that the record fines are clear evidence that the FSA’s more intrusive regulatory approach is hitting firms hard.
Comments Jonathan Davies, of RPC, “The FSA has been much more aggressive this year. The FSA has had new political masters to impress this year but we may have reached the point where this level of regulation could be having a negative effect on the financial services sector.”
RPC says that:
– The number of fines handed out by the FSA more than doubled to 88 from 40 last year
– The average size of fine was up 15.5% to £1,005,000 from £870,000
– The number of large £1m+ fines increased from 8 to 13
Fines set to rise further next year as new penalties policy bites
RPC says that the fines are set to rise next year as a new FSA penalties policy bites. In March the FSA introduced a new policy which increased the fines for businesses and individuals.* The change only affects conduct which happened after the new policy was introduced so very few 2010 fines will have been charged under the new regime.
Jonathan Davies says: “The FSA handed down record fines this year, but with more cases coming through its new financial penalty policy in the year ahead, it looks like the FSA could break its enforcement record yet again.”
“The FSA fines have been escalating without this new policy and financial services firms will want to know when the FSA will reach a limit.”
“Such has been the radical change in the FSA’s activity over the last two years that it would be useful to know just how far the government wants the FSA to go in terms of piling on the pain for the financial services sector.”
“With two new regulators set to replace the FSA, each with its own enforcement department, will the Prudential Regulation Authority and the Consumer Protection and Markets Authority be competing to impose the higher fines?”
Fines just the tip of the iceberg
Jonathan Davies adds: “The amount of fines handed down by the FSA this year is just the tip of the iceberg. The vast majority of firms never get fined by the FSA but there is a huge cost for many of them in defending investigations by the FSA. Often those investigations are dropped without any further action because there has been no wrong-doing, as with the FSA investigation of RBS’s management decisions during the run-up to its bail out in the financial crisis.”
According to RPC, the controversy over the FSA’s decision not to publish the results of its investigation into RBS has revealed how FSA enforcement investigations often fail to find any evidence of wrongdoing.
Comments Jonathan Davies: “Unlike in formal legal proceedings, there is no possibility of firms recovering the costs of defending themselves successfully when they are investigated by the FSA. With the regulator taking a highly aggressive approach, regulated firms are very concerned about this hidden and unaccountable burden.”
Big costs for insurers
Jonathan Davies add: “Many regulated firms and their senior management now regard it as essential to pay for insurance against the cost of defending themselves against FSA investigations. Whilst fines cannot be covered by insurance, legal defence costs are regularly insured. The increased number and complexity of investigations increases the bill for insurers.”
Source : Reynolds Porter Chamberlain Press Release
