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Top 10 FCA fines of 2013

The FCA issued a total of £472.3m in fines against over 40 firms in 2013, a 52 per cent increase on the £311.6m in fines issued in 2012.

Here we look at the biggest fines and the reasons behind them.

10. Aberdeen Asset Managers and Aberdeen Fund Management £7.2m

In September the FCA fined Aberdeen Asset Managers and Aberdeen Fund Management £7.2m for failing to protect client money. The regulator found that Aberdeen failed to ensure that funds placed in money market deposits with third party banks between September 2008 and August 2011 was subject to client money rules.

Clients can hold funds in money market deposits where they have large cash balances in their investment portfolios, in order to generate a return over a fixed period. The FCA says Aberdeen’s failures meant clients were at risk of delays in having their money returned if Aberdeen became insolvent. The average daily balance affected by this failure was £685m.

9. Swinton Group £7.4m

High street insurance broker Swinton Group was fined £7.4m in July over its “aggressive” sales strategy when selling add-on insurance policies. Between April 2010 and April 2012, Swinton sold personal accident, home emergency and motor breakdown policies, generating income of £92.9m.

The FCA said the firm put profit before its customers’ interests. It failed to provide enough information to customers about the policies’ key terms and failed to properly monitor sales calls.

8. Clydesdale Bank £8.9m

In September the FCA fined Clydesdale Bank £8.9m for failing to treat its mortgage customers fairly after miscalculating repayments on 42,500 mortgages.

In April 2009 Clydesdale found an error in how it had calculated mortgage repayments for customers with variable rate mortgages. The error meant that incorrect repayments were made on over 42,500 customer accounts. Of these, around 22,000 customers were left with shortfalls, and faced unexpected increases in their monthly repayments. In total there was a £21.2m shortfall in Clydesdale mortgages, with the shortfalls ranging from under £20 to over £18,000.

Clydesdale, owned by National Australia Bank, agreed to compensate borrowers who underpaid on their mortgages as a result of the errors. The total cost of redress, including the £8.9m fine, was estimated at £42m.

7. UBS £9.5m

UBS was fined £9.5m in February for failures in the sale of the AIG Enhanced Variable Rate Fund.

AIG Life suspended withdrawals from its standard fund and the enhanced fund in September 2008 following high levels of redemptions due to concern about the future of the insurer. At the time, investors were left with the prospect of losing up to 25 per cent of their assets if they did not want to lock away half their investment for three and a half years. In the end investors wanting to withdraw all their assets in December 2008 were hit with a 13.5 per cent reduction in value. The FSA says failures around the sale of the fund led to UBS customers being exposed to an unacceptable level of risk.

6. Icap Europe £14m

Icap Europe was fined £14m by the FCA in September for widespread misconduct relating to Libor. Between October 2006 and November 2010 Icap brokers colluded with traders at UBS to manipulate the Japanese Yen Libor rates for the benefit of traders. Icap breached the FCA’s principles for businesses while the collusion involved a significant number of brokers and two managers over a number of years

Icap was also hit with a £40.5m fine for the same misconduct by the US Commodity Futures Trading Commission, taking its total fine to £54.5m.

5. Lloyds Banking Group £28m

In December the FCA fined Lloyds Banking Group £28m for a catalogue of “serious failings” related to its sales incentives schemes. Automatic demotion for failing to meet targets, uncapped bonuses and one-off payments including a ‘grand in your hand’ competition led to a serious risk of advisers misselling products, the regulator found.

The fine is the largest ever imposed by the FCA or FSA for retail conduct failings, and was increased by 10 per cent because the FSA had previously warned about the use of poorly managed incentive schemes over a number of years. The investigation focused on advised sales of investment products, such as share Isas, and protection products such as critical illness or income protection, between January 2010 and March 2012.

4. Prudential £30m

The FSA fined Prudential £30m and censured its chief executive Tidjane Thiam for failing to inform the regulator at an appropriate time it was seeking to acquire AIG’s Asian arm AIA in early 2010. The fine was split between Prudential plc which was fined £14m for failing to deal with the FSA in an open and co-operative manner, and The Prudential Assurance Company which was fined £16m for the same reason.

Pru launched its failed $35bn (£23bn) bid to acquire AIA in March 2010, which was to involve a rights issue of £14.5bn, the biggest ever in the UK. Pru did not inform the FSA of the proposed AIA deal until after it had been leaked to the media on 27 February 2010.

3. Royal Bank of Scotland £87.5m

In February the Royal Bank of Scotland was fined a total of £390m by the FSA and US regulators for manipulating Libor. In addition to an £87.5m FSA fine, RBS was handed a £207m penalty by the US Commodities and Futures Trading Commission, and a £95m fine by the US Department of Justice.

Between January 2006 and November 2010 RBS’ misconduct included making Japanese yen and Swiss franc Libor submissions that took into account its derivatives trading positions; allowing derivatives traders to act as substitute submitters; and making Japanese yen, Swiss France and US dollar Libor submissions that took into account the profit and loss of its money market trading books.

2. Rabobank £105m

In October Dutch financial services firm Rabobank was fined £105m by the FCA for “serious, prolonged and widespread misconduct” relating to Libor manipulation. Combined with additional fines by the Dutch Public Prosecutor, the United States Commodity Futures Trading Commission and the United States Department of Justice, the firm was fined a total of £662m.

Between May 2005 and January 2011, Rabobank allowed derivatives and money market traders to make or influence others at the bank to make Libor submissions that benefited trading positions linked to sterling, dollar and yen Libor.

1. JP Morgan Chase Bank £137.6m

JP Morgan Chase Bank was fined a total of £572m by UK and US regulators in September over the “London Whale” $6.2bn trading losses incurred by the bank in 2012.

This included a £137.6m fine by the FCA, after it found the trading losses were caused by JP Morgan’s “high risk trading strategy” and an “inadequate response” to information which flagged the risks. The FCA says JP Morgan’s trading strategy for its synthetic credit portfolio caused the size of its positions to grow so large it was at risk of substantial losses from small adverse market movements. 

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Given that £472m represents slightly more than 80% of the FCA’s total operating budget of just under £580m, might we dare hope for significantly lower levies in 2014?

    And, given that these fines (which don’t include all the lesser ones) have been imposed on large financial institutions, might intermediaries who, by a huge margin, pose the lowest risk to consumers, dare hope for some respite from the over-prescriptive regulation, i.e. the regulator telling us how to do our jobs, in which we’re endlessly bogged down?

    Or are such wishes hopelessly over-simplistic in what seems to have become virtually Police State regulation?

  2. Matthew Barsauckas 31st December 2013 at 3:47 pm

    Steady Julian, your Christmas wish will need to wait until at least 2016.

    Regulatory imposition will be the norm for quite some time to come and I am afraid that they are casting a big net.

    It would be interesting to see a full breakdown of all fines for 2013 and as you state including the lesser ones.

    As for levies being reduced, again another Christmas wish for the future.

    The big financial houses are taking these fine hits on the chin and there will be more to follow. But they can service such payouts.

    It is a far more complex and negatively costed structured issue for intermediaries, this will clearly require to be address by the FCA.

    However I fear no action on this will happen until after the next election but by then the backbone of smaller financial service providers may well have crumbled and the professional experience and good advice that the majority bring to the sector will be lost through a mass exodus.

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