Financial Regulatory Violations May Now Come with Significantly Higher Penalties
Starting August 1, violations of financial regulations will come with higher civil money penalties (CMPs). The CMP increases are in response to the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015 (the Act). The Act requires Executive Branch and independent agencies (Agencies) to make annual adjustments for inflation to CMP dollar amounts, as well as an initial “catch-up” adjustment based on a formula set forth in the Act. Although the Act was part of the contentious budget bill that was passed on October 30, 2015 (and that avoided a government shutdown), the Act did not receive much independent coverage, and the increases may be unexpected to businesses that are potentially subject to the increased penalties.
Because the Act is applicable to all Agencies, interim final rules that implement it, including the “catch-up” adjustments, have been issued by all the federal financial regulators, including the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the US Commodity Futures Trading Commission, and the US Securities and Exchange Commission. Some of the “catch-up” adjustments are significant. For example, FinCEN, the OCC, and the FDIC had not increased some of their CMP amounts for more than a decade, and in some cases, for several decades. Consequently, some of their CMP amounts have doubled or nearly doubled. CMP amounts that were adjusted more recently are subject to a more modest increase under the Act and the various interim final rules.
In light of the overall recent heightened regulatory interest in regulatory violations, particularly bank secrecy act and anti-money laundering violations, it is possible that regulatory agencies and self-regulatory organizations that are not subject to the Act but are notably active in enforcement (e.g., the Financial Industry Regulatory Authority and state agencies, such as the New York State Department of Financial Services) will make similar or proportional upward adjustments to their penalties.