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FCA to hit firms with bigger ‘US-style’ fines

Regulatory experts are warning the FCA will continue levying record penalties and hit firms with much bigger “American-style” fines.

Last week, Homeserve was hit with the biggest retail fine in history of £30m for misselling general insurance.

It overtook Lloyds Banking Group’s £28m fine from November over its sales incentives schemes, which offered staff ”grand in the hand” bonuses.

The FCA record for fines has been repeatedly broken in the last two years with the Libor rigging scandal. Fines at UBS, the Royal Bank of Scotland, Icap and Barclays have run into the hundreds of millions.

FCA fines increased 52 per cent last year increasing from £312m in 2012 to £474m in 2013.

CMS lawyer Simon Morris says the FCA considers three areas when it decides on fine levels; firm turnover, seriousness of the breach and its use as a market deterrent.

On turnover, CMS says it has cases where the FCA argues consumer detriment is so high that turnover is not enough and it must also consider company profits or assets under management..

Tthe FCA has to take a percentage of turnover based on the seriousness of the rules breach. Homeserve was charged only 10 per cent of its £300m turnover but more serious fines can run as high as 20 per cent.

Finally, the FCA can use fines as a market deterrent. If the first figures are not enough then levels can be increased to deter others.

Firms can contest fines in the Upper Tribunal if they think they are too high but usually this only happens with practitioners who cannot afford to pay.

Morris says: “Rather like a teenager on their ghetto blasters the FCA keeps on turning the up the volume. It is a very clear message to firms that the bigger they are the more likely they are to attract a very large fine.”

PwC regulatory centre of excellence member Andrew Strange says: “Getting out to visit 50,000 new consumer credit firms from next April will be hard so the FCA needs credible deterrents. Part of it will be issuing big fines on high profile organisations. We will be seeing more of it.”

Independent financial consultant Richard Hobbs says: “It is unclear where the FCA are heading but it could be an American-style system. The US system has been characterised as an arms race; my fine is bigger than your fine. It is utterly without any intellectual foundation.

“They hand out colossal fines and by contrast the FCA hands out much smaller fines. Fines for big international issues such as Libor have shot up to be comparable.”

An FCA spokesman says: ”People will look at the size of the fines, and while that is important, what is driving the work of the FCA is to make it clear that where we find poor conduct, in any form, we will act against it.

“The financial services industry has to move on from a culture where it rewards revenue generation above all else. A sustainable financial services sector needs to take a long term view about how to serve consumers and markets. We have made our expectations on this clear and everything we do as a regulator is focussed on achieving that goal.”

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  1. It would have been a more compelling article if you had actually known Simon’s surname; which suggests you’ve never been in touch with him….

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