A record year for FCA fines
2014 saw the FCA issue its highest-ever total fines, with penalties amounting to £1,471,431,800. This compares to £474,263,738 in 2013.
As of 27 October, the FCA had collected £826,910,767 in fines during 2015. These range from fines of a few thousand pounds at one end, to those totalling many millions at the other.
The largest fine ever imposed by the FCA or its predecessor, the FSA, was levied in May this year, when the regulator imposed a financial penalty of £284,432,000 on Barclays Bank Plc. The fine resulted from the FCA’s conclusion that Barclays had failed ‘to control business practices in its foreign exchange (FX) business in London’.
Fewer fines, but higher ones
There seems to be a movement at the FCA towards fewer fines overall, but larger penalties for regulatory breaches.
An article in Money Marketing in June was headlined ‘Massive FCA fines are “the new normal”’. It states that while the number of fines issued by the FCA and its predecessor, the FSA in 2013/14 fell from 51 to 46, the average value of the fines was two and a half times larger in 2014 than 2013, jumping from £9.9m to £36.8m.
Foreign exchange manipulation and rigging of LIBOR (the inter-bank lending rate) have contributed to this spike in fines, with many banks being penalised to the tune of millions of pounds. Fines from the Financial Conduct Authority for LIBOR rigging alone total £532m, according to an article in the Guardian in November 2014.
Of course this is a global issue: not all fines are levied in the UK or by the FCA. The same Guardian article claims that banks paid out £166bn between 2009 and 2013 – a huge figure. These cover fines for LIBOR and foreign exchange rigging, as well as for sub-prime mortgage activity in the US, which is widely cited as the cause of the financial crisis and ‘credit crunch’ of 2008.
Where does all the money from FCA fines go?
Since April 2012, the money collected from FCA fines has gone to the Treasury. Some of the money has been used to benefit charities – military charities, in particular. In December 2014, the Chancellor, George Osborne, announced that all proceeds from LIBOR fines would be spent on military and so called ‘blue light’ causes – with donations ear-marked to support air ambulances and provide investment for GP practices across the UK.
Last month, it was announced that the Armed Forces Memorial at the National Arboretum was to close for up to a year while it was renovated using a grant raised via the Treasury’s LIBOR fines.
Pinpointing exactly where all of the fine money has been spent, though, is not easy; a Money Marketing article in June this year set out to investigate where the money had gone, but was not able to get a full breakdown from the Treasury as to exactly where it had been allocated. The article estimated that while the Treasury’s announcements about specific initiatives and donations showed where some of the money had been spent, over £1bn remained unaccounted for.
With what seems to be a trend for growing FCA fine amounts, it will probably become more important – for reasons of transparency and public confidence; ironically the very issues that the banks have been struggling with themselves – that the government is open about what it does with the money it receives from the regulator’s fines.
Although the move towards giving FCA fine revenue to charity is laudable, you probably want to avoid contributing to these donations if possible! To find out how to embed a compliance culture within your organisation, and avoid falling foul of the regulator, you can read our whitepaper, How to embed a compliance culture into your business. You can download a free copy here.