MM leader: A way forward on regulatory costs?

Natalie Holt website

We are in a world of record FCA fines. Only last week we saw Lloyds Banking Group hit with a £117m penalty for unfairly rejecting payment protection complaints, and last month international regulators fined five banks a massive £3.7bn in total over foreign exchange rigging, including a £248m FCA fine against Barclays.

Add the Libor fines into the mix, and you get to some pretty eye-watering sums. The scale of the misconduct over recent years has meant we almost become immune to yet another headline about bank wrongdoing.

But make no mistake – these are significant amounts we are talking about. Money Marketing calculates that over £2.9bn has been collected in FCA fines over the last two years or so. So where does all that money go?

It is a simple question, but one the Treasury seems unable or unwilling to answer. The Treasury has been on the receiving end of FCA fine money since April 2012, a time conveniently chosen to coincide with the £59.5m fine handed to Barclays for manipulating Libor.

The Treasury knew a good thing when it saw one. As fines rocketed, the regulator deducted its enforcement costs and passed the remainder to the Treasury. Financial services firms (though obviously, not the ones who had been fined) used to see penalties allocated to the regulatory budget, pushing down their regulatory costs. But not anymore.

So it is interesting to note the Treasury cannot tell us what it spends all this money on. It can tell us when it suits them, for example, generic amounts allocated to the NHS and military charities. There is no denying these are worthy causes.

But by our estimates, it cannot account for a whopping £1bn of FCA fine money it has received. The Treasury’s argument is that it goes into a central pot, and they do not keep track of what happens after that (or at least, it cannot tell us). But if the Treasury is not keeping track of the money, who is?

There are questions about accountability and how transparent the Treasury is being with the money it receives. But it is an issue worth challenging the Government on given the spiralling regulatory bills advisers are contending with.

The FCA’s funding review of the Financial Services Compensation Scheme represents an opportunity for advisers to force the issue of FCA fines and how they are spent into the open. Advisers do not want to be a regulatory cash cow, particularly when the Treasury cannot definitively say how almost £3bn is spent.

Natalie Holt is editor of Money Marketing