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Regulatory fines more than double in the UK


Kinetic Partners' 2015 Global Enforcement Review reveals that the Financial Conduct Authority penalised firms a total of GBP1.47 billion in 2014, with an average value of fines up by two and a half times on 2013, at GBP36.79 million compared with GBP9.88 million in 2013.

The firm, a division of Duff & Phelps, finds this indicative of a trend in recent years, as the average monetary sanction has increased by more than 1800 per cent since 2009, when the average FSA fine was GBP20.7 million.
In compiling the annual report, 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 per cent in 2014, up from GBP474.27 million in 2013.
The report also found that individuals were fined a total of GBP2.9 million by the UK’s financial services regulator in 2014, down from £4.99m in 2013 and that 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.
Monique Melis, Managing Director and Global Head of Regulatory Consulting at Kinetic Partners comments on the penalty values:
“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.”
The report also looked at trends in the US and Hong Kong, revealing that the US Securities and Exchange Commission (SEC) issued a record number of enforcements in 2013/14 at 755, up from 686 in the previous fiscal year. Penalty values, too, have increased in the US – the SEC’s sanctions totalled USD4.6 billion in 2013/14 compared to USD3.4 billion in 2012/13.
In Hong Kong, the Securities and Futures Commission (SFC) issued HKD62.8 million in fines in 2014, compared to HKD40.7 million in 2013, a 50 per cent increase in one year.
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. It gives as an example January 2015 which saw the first individuals fined by the FCA in relation to Libor rate-rigging offences and in the US, of those fines issued by the SEC in the most recent fiscal year, 449 individuals, or 59 per cent overall, were penalised, compared to 306 financial institutions.
Hong Kong’s 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, comments on the fines towards individuals:
“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.”

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