The Financial Conduct Authority (FCA) penalised firms a total of £1.47bn in 2014, according to the 2015 Global Enforcement Review published by Kinetic Partners, a division of Duff & Phelps.
Kinetic Partners analysed publicly available data from financial services regulators across the UK, US and Hong Kong to determine regulatory trends and their effects on the financial services industry. The review observed that the total value of fines issued by the FCA has increased by 68% in 2014, up from £474.27m in 2013. Other significant findings include:
- Individuals were fined a total of £2.9m by the UK’s financial services regulator in 2014, down from £4.99m in 2013;
- The FCA imposed 46 fines during the 2013/14 fiscal year – down from 51 issued by the FCA’s predecessor, the Financial Services Authority (FSA), in 2012/13 and 83 in 2010/11;
- Average values of fines issued by the FCA in 2014 were two and a half times higher than in 2013, at £36.79m compared to £9.88m in 2013. This is indicative of a trend in recent years, as the average monetary sanction has increased by more than 1,800% since 2009, when the average FSA fine was £20.7m.
Monique Melis, managing director and global head of regulatory consulting at Kinetic Partners, said: “2014 saw a significant spike in the severity of financial penalties virtually across the board, as regulators have been getting tougher on both firms and individuals. However, the averages only tell part of the story as they have been pushed up by a relatively small number of historic fines, mainly relating to Libor and Forex manipulation.
“We are now entering an era of regulatory enforcement in which the ‘new normal’ consists of exceptionally severe penalties and a growing focus on individual bad actors, the aim of which is to impact and change the culture of firms.”
While fines against individuals in the UK seemed to have declined, Kinetic Partners’ research suggests that the focus on individual bad actors is still a priority globally. For example:
- January 2015 saw the first individuals fined by the FCA in relation to Libor rate-rigging offences;
- Of those fines issued by the SEC in the most recent fiscal year, 449 individuals, or 59% overall, were penalised, compared to 306 financial institutions;
- The SFC pressed criminal charges against 26 individuals in 2013/14, the highest since 2010.
Julian Korek, head of compliance and regulatory consulting at Kinetic Partners, added: “Actions against individuals are likely to play an increasingly integral role in regulators’ efforts to deter bad behaviour. Such sanctions are an undeniably powerful deterrent as, unlike financial penalties imposed on firms, they cannot be written off as a business cost.
“Regulatory leadership in the UK recognises that an organisation’s senior management is not necessarily able to police staff at all levels, so holding the bad actors themselves accountable is a step towards influencing institutional culture in the right direction. However, there is also a real risk that the targeting of individuals could reduce the attractiveness of financial services as a career. As always, it is a balance that regulators need to strike.”
