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Nic Cicutti: FCA fines shouldn’t go to advisers


Anyone leafing through the archives of the financial trade press is certain to find one recurring theme: a continuous focus on the heavy cost of regulation.

Without fail, every year throws up a slew of headlines on the subject in Money Marketing and elsewhere, with plenty of stories bemoaning the regulatory burden that advisers have to face.

T’was ever thus: a survey of 3,000 small firms more than 10 years ago by the FSA’s Practitioner Panel, which also appeared in Money Marketing, found that “the cost of compliance is the single biggest issue.”

What is relatively new – or at least seems to be an issue that has cropped up only in the past year or two – is the question of what should happen to the money raised from fines levied by the FCA of miscreant firms that have fallen foul of the regulator.

Last week Money Marketing ran a detailed article in which it queried how this money was being used.

There appear to be two strands to the MM story. The first is about accountability: since April 2012 the FCA appears to have raised close to £3bn in fines. Its own website shows more than £800m has been raised in fines during 2015 alone.

The change to how this money was to be used was unveiled by Chancellor George Osborne in 2012, shortly after the first massive Libor-related fine imposed on Barclays. Until then, the FSA had generally raised a few tens of millions through fines, relative chicken feed compared with today.

However, in a neat piece of party politics, the Chancellor told MPs: “Under the previous government’s regime, fines paid to the FSA are used to reduce the annual levy other financial institutions are asked to pay. I am far from convinced that this is the best use of the money.”

Instead, the Financial Services Bill that became law in December 2012 required all FCA fines from April that year, minus enforcement costs, to be passed on to the Treasury.

Where is all this money going? In the aftermath of the Bill, there was a small drip feed of media-friendly announcements telling us where some of that money was being used. More recently, the silence has been deafening.

The Treasury says some money has been spent on specific areas, for example, £1bn of fines related to forex manipulation has been spent on the NHS, or so we are asked to believe. But MM’s research suggests that apart from this, up to another billion is unaccounted for.

Back in January 2013, shortly after the Bill became law, a Treasury spokesman was quoted as saying: “There may be more announcements in the future about how the money from FSA fines is spent, but there is no firm commitment from the Exchequer to do so.”

And that is how the Treasury wants it to be, despite a growing chorus of calls for more clarity by range of individuals and organisations.

Last year, the Financial Times’ influential columnist Gillian Tett argued: “At the very least, there needs to be more public debate about how this punishment pot will actually be used; after all, one lesson from the financial crisis is that opacity has a nasty habit of breeding abuse.” She is completely right.

Once we do know where it is going, the second, more difficult strand of the discussion is that of what to do with the loot. Some advisers are calling for the money to be recycled back into “our sector”, for example to reduce the impact on regulatory fees or to “solve the Financial Services Compensation Scheme problem”.

I have no sympathy whatsoever for fines money to be used to ease the regulatory burden. It seems to me, as some of last week’s columnists also pointed out, that for the industry to be seen to gain out of this windfall would be exceptionally bad PR. Plus, by their nature the annual fines involved might fluctuate so significantly that financial firms would find it impossible to budget effectively.

Using the money to help the FSCS has more logic to it. And I rather like Apfa director general Chris Hannant’s idea of the FSCS levy continuing as now, with some of this fines money being kept and used to offset higher claims years.

But even here, my underlying view has always been that fines and compensation costs are a “negative incentive” for the rest of the industry to clean up its act. This applies to the FSCS levy too.

My personal preference would be for the money to be locked into a trust fund and to disburse annual grants towards a combination of financial education and debt advice.

These too are areas that advisers and the industry has been roped in to help fund, so they would see some small benefits. Better-educated and informed consumers would also indirectly benefit the industry.

The central issue, however, is that of accountability and openness. We need a proper campaign with support from consumer groups and MPs from all parties to both open the books and initiate a public debate on how that money should be spent. This should be done while trying to lay no claim to it on behalf of the industry. It seems like the perfect job for a trade association keen to demonstrate its pro-consumer and lobbying credentials.

How about it Apfa?

Nic Cicutti can be contacted at



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There are 33 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 18th June 2015 at 9:42 am

    You’re entitled to express your opinion Nic but the fact is that you yourself don’t have to pay any regulatory levies so you know nothing about the endlessly increasing burden they represent for those of us who do.

    And I fail completely to see any logic in your idea that applying fines against firms found guilty of wrongful acts to offset regulatory costs for the rest of us (who’ve done nothing wrong) is some sort of negative incentive for the rest of the industry to clean up its act.

    If (as is the case) I’ve done nothing wrong and have no intention of doing so, then how could a reduction to my now five tiers of levies (plus ad hoc extra levies from the FSCS) constitute any sort of incentive to do things any differently? Wrong doers are wrong doers. How are lower regulatory costs likely to change how such people behave?

  2. The fines that are issued are, in most part, due to weaknesses or inappropriate behavior that has lead to or could lead to customer detriment – I don’t understand why the funds should be used to offset fee’s for financial firms or advisers. I do appreciate that the rise in fee’s due to covering the costs of those that have sinned is hard to swallow, but to use an example of car insurance – we all pay higher premiums because of fraudulent claims and covering those that are uninsured.

    I am in agreement that the fines should be used both to encourage further confidence in ‘our sector’ and fund training and development of its professionals whilst also looking at ways to help those that are woefully short of the financial help that they may need but haven’t got access to – the fines are issued due to poor customer outcomes, should this not be put back in to the industry to try and improve these outcomes?

    That said, we don’t know where the money has gone or is going, so to see no benefit for anyone is the most frustrating part for all.

  3. PJB ~ You seem to be conflating two different though related issues. Increased FSCS levies to fund compensation for clients of firms who’ve been unable to meet their liabilities, particularly in respect of unregulated investment schemes, which never used to be covered by the FSCS, is one thing. The confiscation by the Treasury of fines that hitherto were applied to offset the total cost of the FCA is quite another.

  4. Nic is quite correct, fines should not be used to compensate the cost of regulation. After all most small practitioners pay very little if they are directly regulated. the large groups and networks do pay more, but their history shows they are much more likely to get complaints, thus the cost per adviser increases.
    No, these fines should be distributed to charities that deal with the fallout from too easily available credit, old age, government reduction to benefits issues and foodbank providers. Perhaps they can also fund Pension Wise telephone and Face to face meetings.

  5. Advisers who complain about this would be well advised to research who the “adviser” class contains. Even with the serious retrenchment by the big banks in this area, I suspect they’re still the major funders in these fee groups – which would of course mean they’d be the biggest beneficiaries of any such redistribution. Does that change anyone’s mind?

    @Julian: As always, I’d be a lot happier about your positions on these matters if you were directly authorised and actually had some skin in this game.

    +1 To Nic and Paul Hick.

  6. The money should be used purely to compensate victims of poor advice were the miscreants cannot pay or PI is not available….simple. This in turn would reduce our levies to the FSCS, never heard anything sensible from Cicutti in all the time he has been stealing a living.

  7. These discussion never take into account that our clients actually pay these levies as the banks customers pay these fines. How you choose to be regulated and in what capacity is of no relevance unless you think of yourself as being superior?

    The real issue is why should innocent clients be extorted in this way?

  8. The fines being used to benefit consumers seems to find consensus. Compensating victims of financial crime not covered by FSCS or otherwise, seems an obvious one. Supporting key organisations /charities help people with severe money problems get straightened out seems another.

    More controversially to Nic and others maybe…reducing regulatory fees on compliant advisory and other financial firms, with corresponding reductions to product and service pricing is also relevant. After all, it’s ultimately customers, not firms, who ultimately bear the regulatory costs which seem to have risen by amazing amounts, beyond normal inflationary amounts.

  9. Scott Gallacher 18th June 2015 at 1:18 pm

    I fundamentally disagree with Nic, and many of the comments on here, on this particular point.

    Regulatory fees/fines are seens as somehow being paid by the wrongdoers as it were. However, in reality the fees/fines are ultimately paid by clients who pay higher costs.

    By using the fee/fines to reduce the costs for the more compliant firms, this in turns allows those firms to reducing their charges to their clients.

    Effectively you create a virtous circle with the bad firms paying high fines, and these fines reducing the regulatory costs for the good firms.

    The alternative, is that the clients of good firms in effect end up paying twice. Firstly they pay for their own firm’s compliance costs, but then again for a higher compliance burden as a result of other firms bad behaviour which invariably leads to regulators introducing more and more rules and more and more compliance.

  10. John Hutton-Attenborough 18th June 2015 at 1:26 pm

    When will there ever be some recognition that there are actually many advisers who do good or an incentive for others to do the same?

    Why cannot there be an approach where the “Levies” are set each year at whatever level they have to be to do the job. “Good” advisers should then benefit from a “No-Complaints/ regulatory failings” discount which increase each year in the same manner as car insurance. Any gap between the levy and the FSCS bill can be met from the regulatory fines and any surplus can go to the Treasury.

    The good therefore get a reward whereas the bad pay full levy and also their fines pay part of the compensation.

    Certainly a fairer system than exists right now!

  11. The reason that regulatory costs have increased over the years is the need for the regulator to spend more money in increasing its own infrastructure to deal with errant firms.

    Why on earth is it the fault, nay, the financial responsibility of firms who are well behaved to fund this burdening cost.

    Quite frankly it makes perfect sense for the money raised to be used to reduce the regulatory costs for those firms that clearly tow the line.

    Rather than the industry “gaining out of this windfall” it is more to the point that the industry would be rewarded for good practice.

    I think your comments are completely ill conceived ignorant and without foundation. It may not be good PR, but having no industry at all but the rouges, due to high regulatory costs, is also bad PR, don’t you think?

  12. So assuming Nic is a good guy how would he like to pay an un-budgeted for levy based on the wrong doings of the News of the World? Hey he’s a journalist and journalists did bad things therefore he just has to accept the collective guilt; doesn’t he?

    Not for the first time, I have to disagree with Nic’s logic.

  13. Piers Clarkson 18th June 2015 at 1:52 pm

    None of this money grows on tree’s. Financial services earn money from other peoples money, this money is earned in a multitude of ways…

    Government and quango’s don’t make money they take it from other people, they spend it how they see fit with seemingly little accountability or transparency. They attempt to justify their actions with sensational strap lines and reasoning…

    The wonderful place we call home is awash with debt which we can just about afford to make the payments on… Peter is robbed to pay Paul, appropriation of billion pound fines is less controversial than other ways of getting billions to keep the home fires burning…

    All of this goes into the education of clients surely… when you go through the client agreement explaining each bit in turn… this is where the charges go, there are many noses in the trough including the regulatory bodies and the governments…there are even lesser spotted financial journalists who have their nose in it…

    If you are happy with that then please sign here Mr/Mrs Client you can help support many families in many ways!…;-)

  14. I have said it before and it may be an inconvenient fact, the oft trotted out cliché that regulatory costs have gone up significantly is not true. Firstly these have to be defined so we know what is included in these costs before such a sweeping statement is made. Secondly they have to be put into some form of perspective when compared with other costs we incur. Thirdly they have to be looked at on the basis of a firm’s business model e.g. networked or directly authorised, business split, specialism etc. We are DA and our business model has hardly changed over the years and our fees as paid to the FSA/FCA have remained remarkably similar over the years and as a percentage of turnover have actually fallen by 60% when compared to 2003/2004. Which is not to say that our costs have not risen but these are for many other reasons – compliance and compliance consultants, IT, employment, capital adequacy, rising claims culture, RDR, T&C, software. And the FCA has much to answer for here.
    Two obvious conclusions come to mind. I would doubt that rebating fines to advisers will amount to much. Secondly the actual specific cost of fees and fines for our clients is relatively small has remained fairly static over the years. Client fees could possibly be reduced if firms received a rebate but by how much? Not much I would suggest.
    Yes the abhorrent FSCS levy is wrong in principle and it is also totally unacceptable that the FCA can raise their regulatory costs by 12% in one year but so much of our ranting as evidenced on MM lacks rigour. And the FCA and Government will rightly dismiss us as lacking credibility.

  15. How about all builders, plumbers, electricians, joiners etc pay a levy to fund a compensation service to correct the poor work done by the other firms of cowboys. To oversee all of this they can pay extra to a Quango with some nice shiny offices in Canary Wharf. In addition they can pay for other organisations to run various websites, telephone lines and information services on builders and all of their related products and services.

    After all I once saw a programme on the BBC that said they were all cowboys anyway!

    Nic must obviously be a bent police bribing phone hacker. I mean he is a journalist and they all do it, don’t they?

    What ever happened to proper investigative journalism? The one where they had some balls would look into the scandalous corruption that goes on at the highest level of this country day in day out. These levies and fines are nothing more than a back door form of taxation in the shape of a giant Ponzi scheme. Try writing something about that Nic!

    I don’t want to be given any money by anybody, but want I do want is fairness, accountability and some honesty. Let’s face though, we’re talking about unaccountable Quangos, politicians and journalists. #Soundbitesociety

  16. I watched Paul Gascoigne the other day on TV promoting his new documentary/film.
    He was quite clearly distressed at reliving moments when he accused his own family of betraying him to journalists.

    It turned out they weren’t betraying him, his phone was being hacked by your illustrious colleagues. This was a time when he was in a desperate emotional and physical state.

    So Nic, when you dip into your personal account and send Gazza £20k for the wrong doings of your profession you may have a better perspective. Until Then!!!!

  17. And fines levied on Newspapers for blatant litigation failings or even such auspicious activities as phone hacking should really be paid by the journalists themselves who are the miscreants responsible. Otherwise it is the innocent medias’ buyers who end-up paying higher prices for their copy, suffering for journalists’ misdemeanors and indiscretions.

  18. You recommend that the money goes to fund “financial education and debt advice”. Isn’t that was MAS is supposed to do, which we advisers already part fund?!

    Last year they had a budget of £81.1 million.

    Assuming the powers that be agreed with you Nic, where do you recommend the rest of the fines go?

  19. Ah Nic, he certainly knows how to stir the pot. No one is saying fines should go to advisers but there may be an argument that some of these fines should go to the collective regulatory bodies within financial services with a spin off that costs to advisers and firms may go down. I say may because the way the FCA likes to spend money there’s no guarantee.

  20. To some of the comments which seek to draw an equivalence between misdoings by the financial services industry and the kind of journalism perpetrated by some members of the tabloid press, I’m not sure what the point is.

    Every penny of compensation paid out by the News of the Screws or the Mirror group, among others, has come from from its owners’ pockets, or those of shareholders. It is, in effect, the equivalent of a large insurer paying an FCA fine and/or pa. When that happens, there is no levy, just like there’s no levy on advisers if Aviva or Barclays have to pay compensation to their customers.

    @ Craig Mulhearn. I think the fines money could go towards replacing some of the fees that advisers (and other parts of the industry) pay towards the MAS. That’s what I meant by some small indirect benefits for advisers if this were to happen.

    Incidentally, I would also like to see the MAS control over debt advice funding removed, with CA being given the responsibility for co-ordinating this work. But that’s another story.

  21. Freedom of speech within the UK is one of the things that make this country great but unfortunately sometimes the people using seem to define belief.

    The fact is Nic you are a journalist just like Paul Lewis and Martin Lewis who seem to come out with similar stupid viewpoints of financial services when criticising IFA’s and the financial services industry. The fact is your profession doesn’t pay any regulatory fees, though many in your profession make a considerable living out of giving advice to the consumer without having to pay or take responsibility for their advice.

    The fact is many hard-working advisers who do nothing wrong year in year out end up having to pay higher regulatory fees those who act badly or indeed simply make a mistake and that money should be retained with in financial services to help those who do an exceptionally good job in difficult circumstances.

    The cost of FSCS has increased every single year due to mis-selling complaints and I suspect pension freedom will at some point down the road end up being the largest of all of these complaints, so why not retain some or a large part of this money within the industry to try and keep the regulatory costs down and therefore costs down to the consumer as ultimately it is the consumer that ends up paying higher adviser charges which seem to be such big news at the present.

    I really do wonder whether it has become time for there to be an annual fee paid to the FCA for any journalistic article written on financial products or services and maybe even forced journalists to sit some exams as a minimum qualification standard. I wonder what the reaction from journalists would be if that was the case?

  22. You really are a bit dim on this one Nic, sorry!

    Just for the record, what proportion of your charges are required to defray the cost of your regulatory overhead? Ah, that’s right!! We pay for the bad folk yes, but that’s hardly our fault.

    Imagine if good journalists paid for the bad in the same way and were regulated as tightly, your industry would be out of sight by now!

  23. The point Nic is that when one is sitting at desk and an envelope arrives with a levy demand for say £1500 or £2000 which has nothing to do with you, one will not feel happy about it! Just as you wouldn’t feel happy about being effectively fined for what the News of the Screws did.

    Whilst it sounds a bit pathetic in a way, it simply isn’t fair! If you feel so strongly, get your cheque book out and contribute, then I’ll be impressed!

  24. Julian Stevens 18th June 2015 at 8:53 pm

    Over the 25 years that fines were applied to offset the overall costs of regulation, I don’t recall any cries of dissent from those now suggesting that it’s wrong for advisers to “benefit” from such a system. Are you all now saying that you feel you should have had to pay more so that these fines could be used for other things?

    As for Chris Clare’s observation that regulatory costs have increased over the years due to the regulator spending more money increasing its own infrastructure to deal with errant firms, I suggest (once again) that were the regulator actually to analyse the data submitted to it by way of the periodic RMA returns, the process of identifying unhealthy trends and then swiftly taking action on them wouldn’t be nearly so costly as it is now. One of the FCA’s new mantras was that it would seek to be more proactive yet still, time after time, it fails to turn up at the scene until after the train has left the rails.

  25. The point Nic is that every adviser in the land is penalised for the misdeeds of the few – not quite the same as a fine against a particular firm is it?

    I have no problem with any excess income being passed to the Treasury but it should pay for the costs of regulation that the innocent otherwise fund first, otherwise it is basically theft, although…..

    It’s one amazing coincidence that the moment the fine money goes to the Treasury, the incidence and size of fines levied goes through the roof and the Government finds it ever so convenient to completely ignore calls for accountability at the FCA.

    It’s starting to look like the Government see the FCA as a cash cow too good to miss and as a consequence don’t give a fig about the fairness of the system.

    What is that disgusting smell?

    Ian Coley

  26. it is very difficult to avoid being provoked by this article. But I agree with Scott Gallacher and John Hutton-Attenborough

  27. @ Ian Coley (and others): No, look, I’m sorry, you’re either wrong or confused, one or the other.

    Here’s the deal: you pay a fee to be regulated. There are arguments, some of them good, as to whether regulatory costs are appropriate, if they should be risk-related, if there ought to be a premium for non-offending firms etc. and how they should be divvied up according to different classes of adviser.

    The cost of that regulation, however, is what it is for now. Alternatively, if @Duncan Carter, you are seriously proposing that you mustn’t pay at all for the cost of regulation because you are not guilty of any of the mis-selling caused by others, that’s also fine by me.

    In which case, get ready for purchases of any financial product to fall off the edge of a proverbial cliff and for consumers to shun advisers en masse once they realise there is no longer any financial regulation and we are in a real financial services Wild West.

    All the stuff about journalists and regulatory costs is completely bonkers. If a newspaper is found guilty of, say, hacking, a court will order it to pay compensation to the victims. In financial services, the equivalent is the FCA telling an insurer to compensate victims of mis-selling.

    The view in both cases is that the guilty party is the institution not the individual journalist or salesperson – although it is clearly open to both the paper or the insurer to take action against the individual journalist who caused the problem.

    If journalists are found to break the law they go to jail. End of. If there were ever any doubts that a newspaper was unable to pay court-ordered compensation costs I’m sure other media outlets would be forced to step in.

    Back to reality, the issue we are talking about is that of how money levied from fines levied on miscreant financial institutions, most of them big banks, should be used.

    I don’t believe that money should be used to bring down “real” regulatory costs. I believe it should be used to offset costs in some financial areas, like consumer education or debt advice. I also believe there ought to be a debate about how the money is used, as well as transparency in terms of SEEING how it is used. I think advisers could play a powerful role in that debate.

    Instead, the responses I read above indicate how completely unready some of you are for that public role. Sad.

  28. Your comments are not consistent Nic. Read again and try harder next time.

    I’m off to read FT Adviser, as I now find you and also the lay-out of the paper irritating!

  29. Julian Stevens 22nd June 2015 at 9:46 am

    So ~ no willingness whatsoever to give credence to anybody’s views which differ from yours, Nic, or to reconsider your stance on anything, even though you don’t actually do the job that we do or have to pay the levies that we do or bear all the other overheads that we do or have to cope with the routine injustices of a totally unaccountable regulatory framework that never accepts responsibility for its own failings, preferring always to hold others responsible and to force others to pay for the consequences of those failings. And never have had to do so. Oh well.

  30. Nic, I’m not anti regulation, anti tax or anti police and I pay my way. I also pick up other people’s litter and dog poo.

    If there was a viable option to go to court and have normal legal rules applied then that would be fair. The FCA isn’t a court and its’ ‘judgements’ cannot effectively be tested through due process.

    I’m sorry you’ve singled me out but I just don’t agree with you on this point. The various regulatory bodies have a statutory ability to levy fees and decisions which cannot effectively be challenged without a costly and risky Judicial Review. On the other hand Nic, you can more or less say what you want provided it isn’t provably (in court that is) libelous.

    I assume the Journalists Regulatory Authority hasn’t started yet! Once it does, wait until you’ve paid your sub’s and then get a demand out of the blue that has nothing to do with you following on from which, nip down the pub and buy everyone a beer.


  31. One question Nic, why if there are no regulations will the sale of financial products fall of the proverbial cliff? So what you are saying is that before 1988 no financial products were sold and there were no financial advisers???

    Oh the wonderful world of journalism – you have the ability to say whatever you want on the front page of your papers and if the information is found to be wrong can put an ‘apology’ in very small writing on page 132 of the same paper and everything is ok. What you should be looking at Nic is not the level of fines, but who are the fines against? and then who is paying the regulatory fees because ‘all’ financial services companies are ‘dodgy’? Personally i dont trust any journalist, not because all journalist are corrupt, but simply because of Piers Morgan. Most people dont trust IFA’s, not because all IFA’s are corrupt but because of Northern BarcWest Building Society!

    Now do you get it???

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