Regulatory Zeal: substantial increase in level of FCA fines and penalties.
Monday 23rd December 2019
Fines and penalties issued by the UK’s Financial Conduct Authority (FCA) in calendar year 2019 so far have risen to their highest level for a single year since 2015. The FCA has issued over £392m in fines this year – a significant increase on the figure of less than £60.5m for the calendar year ending 2018 and greater than the combined total for the previous three years.
An examination of the fines issued in 2019 reveals that a significant part of the above total comes from large fines given to a number of prominent financial institutions. UBS, Goldman Sachs International, Bank of Scotland and Standard Chartered Bank were each fined £27.6m, £34.3m, £45.5m and £102m respectively. The former two were fined due to transaction reporting failures, while Bank of Scotland received its penalty in connection with the ‘HBOS Reading scandal’ which involved a case of serious fraud committed by rogue staff in the bank’s Reading branch. Standard Chartered Bank was fined on account of failures to meet the requirements of anti-money laundering regulations.
With such a notable increase in the value of fines imposed by the FCA this year, it seems that the regulator is keen to send a strong message to the financial sector about regulatory compliance. Jonathan Cary, partner at law firm RPC told the Financial Times, “After several years of relatively low levels of fines, the FCA is baring its teeth”.
Perhaps this was to be expected given recent events at the regulator. In June this year, MPs of the influential Treasury Select Committee questioned whether the FCA had been ‘asleep at the wheel’ as the collapse of Woodford Investment Management unfolded. The regulator separately came under fire regarding how it handled the failure of London Capital and Finance plc, as well as its efforts to deal with the alleged mistreatment of certain business customers by divisions of Lloyds Banking Group and The Royal Bank of Scotland (RBS).
Nevertheless, Nick Price – of law firm Osborne Clarke – told The Guardian, “Fines are up this year but a few years ago they were much higher”. Price went on to note that the regulator’s fines were “business as usual” aside from the few ‘headline’ fines. Indeed, FCA fines totalled over £1.4bn in the calendar year 2014. In that year, the regulator issued penalties to Citibank, HSBC, JPMorgan Chase, RBS and UBS of amounts exceeding £200m each. Those fines were all due to failings around risk management systems for trading in London.
In any case, the FCA is currently undergoing a period of significant change. Its current Chief Executive, Andrew Bailey, has been nominated as the next Governor of the Bank of England – due to succeed Mark Carney in 2020. The FCA will therefore be selecting a new leader in the near future; we shall have to see whether they continue this year’s zeal for regulatory enforcement.
