Look Back In Anger: FCA Enforcement in 2017
During 2017, the FCA imposed fines for misconduct on regulated businesses and individuals totalling over £229,500, 000.
Whilst 2017 did not see a return to the number or size of fines imposed by the FCA in 2014/2015 (when billions of pounds of fines were imposed following interbank rate and FX related misconduct), the year did see a tenfold increase in FCA fines from 2016 (total fines of just over £22 million). And the FCA has said that the era of big fines is not at an end and that if it sees conduct worthy of a big fine then it will vigorously pursue offenders.
2017 fines profile
The companies on the receiving end of the largest fines last year were:
- Deutsche Bank AG (fined just over £163m for breaches of PRIN 3 and SYSC relating to culture/governance and financial crime);
- Merrill Lynch International (fined just over £34.5m for failing to report 68.5m derivative transactions);
- Rio Tinto PLC (fined just under £27.5m for breaches of the Disclosure and Transparency Rules and failure to comply with International Accounting Standards); and
- Bluefin Insurance Services (fined just over £4m for breaches relating to conflicts of interest, culture/governance and unfair treatment of customers in the general insurance and protection sector).
Of the 13 fines levied by the FCA in 2017, eight were against individuals with the level of fines ranging from £10,000 to £105,000. We expect this trend to increase over the coming years with recent regulatory changes aimed at holding individuals personally accountable for actions that contravene the FCA’s rules. The Senior Managers Regime in particular has forced managers in the banking and insurance industries to take responsibility for their and their subordinates’ actions. As we have said before, it is crucial for those in senior positions to be fully conversant with FCA requirements of them and their teams. Any lapses in this respect will place senior managers at significant risk of personal liability for substantial fines.
Much in keeping with the trend seen amongst various regulators across the globe in 2017, it seems highly unlikely that the FCA’s appetite for exercising its enforcement powers, including imposing fines, will diminish in the year ahead as the FCA pursues its “credible deterrence” policy, taking tough, targeted public action taken against regulatory misconduct as a way of changing market behaviour.
It may feel like FCA enforcement activity has been a little quieter in recent months. But the FCA’s Head of Enforcement Mark Steward has said that there is a lot going on behind the scenes at the regulator. In September 2017, Mr Steward announced that there has been a 75% increase in the number of investigations as a result of three factors:
- More investigations into capital market disclosures, where there have been poor practices which could mislead the market and even become market abuse.
- The extension in scope of the reporting regime brought about by the Market Abuse Regime which has seen more participants reporting more data especially around suspicious transactions.
- The FCA’s change in approach when deciding whether to open an investigation which sees more investigations opened that may not end up in formal disciplinary action.
So watch this space for more fines, more ‘naming and shaming’ as we move into the New Year. At least some of the 75% increase in FCA investigations in 2017 will almost inevitably translate into disciplinary action against firms and individuals in 2018.