UK FSA Considering Increasing Penalties Three-Fold

by Jason Gorringe, Tax-News.com, London

13 July 2009

The UK Financial Services Authority (FSA) on July 6 published plans to create a consistent and more transparent framework for calculating financial penalties which could mean that some fines treble in size.

The new plans reflect the FSA’s determination to change behaviour and address concerns that firms are repeatedly failing to improve standards (e.g. in relation to misselling to consumers and market misconduct). They are also intended to ensure that fines better reflect the scale of the wrongdoing and that any profits made from the breaches are clawed back.

Under the new proposals, fines will be linked more closely to income and be based on:

• Up to 20% of the company’s income from the product or business area linked to the breach over the relevant period;
• Up to 40% of an individual’s salary and benefits (including bonuses) from their job relating to the breach in non-market abuse cases;
• A minimum starting point of GBP100,000 for individuals in market abuse cases.

According to the FSA, the total fine imposed will also take into account other factors, such as the desired deterrent effect and any settlement discount.

Margaret Cole, director of enforcement at the FSA, said:

"These proposals are an important step in pushing forward our ethos of credible deterrence. 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 the following steps:

• Removing any profits made;
• Setting a figure to reflect the nature, impact and seriousness of the breach;
• Considering any aggravating and mitigating factors;
• Achieving the appropriate deterrent effect;
• Applying any settlement discount.

This approach is the latest stage of the FSA’s 'credible deterrence strategy' and will apply to all enforcement actions including against firms, individuals and listed companies.

Consultation on the matter will be welcome until October 21, 2009, and any new policy is likely to apply to breaches committed after February 2010.

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