06 Jul 2009, David Benyon, Operational Risk & Regulation
LONDON - The UK Financial Services Authority (FSA) has proposed multiplying the amounts firms and individuals are fined, as part of plans to rethink its financial penalties framework.
The regulator says some fines could treble in size as a result of the proposals, which aim to create a consistent and more transparent fining framework to punish and change behaviour at firms the FSA accuses of repeatedly failing to heed warnings for market abuse or consumer mis-selling.
The plans specify that fines should total up to 20% of an offending company's income from the business line linked to the breach over the relevant period or up to 40% of an individual's salary, including bonuses. They set a £100,000 base rate for market abuse fines against individuals.
The focus on market abuse reflects the volume of penalties issued by the financial watchdog over the past 18 months for insider trading, while the hike in penalties forms part of the regulator's "credible deterrence strategy".
In response to criticism that previous fines have failed to represent an effective deterrent against abusive behaviour, it is telling that "the desired deterrent effect" will be one of the major variables behind future penalty calculations.
The consumer focus also marks a reaffirmation of the regulator's principles-based Treating Customers Fairly strategy, which has already led to major fines for mis-selling payment protection insurance and mortgage mis-selling.
The new penalties system follows on from last week's announcement by the regulator that, as part of an internal restructuring programme, it is merging its financial crime and enforcement divisions, under its enforcement director Margaret Cole.
"These proposals are an important step in pushing forward our ethos of credible deterrence," said Cole. "By hitting companies and individuals in the pocket where it hurts, the fines will be a stark warning to others on what they can expect to pay for flouting our rules. Moving to this new framework will enable our enforcement policy to continue making a real difference to consumers and to changing behaviour in the financial services sector."
The full framework will consist of five steps: removing profits; setting a figure to reflect the nature, impact and seriousness of the breach; considering aggravating and mitigating factors; achieving the appropriate deterrent effect; and deducting any settlement discount.
Consultation on the plans closes on October 21, and the FSA says the policy is likely to apply to fines from March 2010.
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