The money raised from Financial Conduct Authority fines continues to grow. A Guardian article earlier this month reported that the regulator’s fines have ‘ballooned’ to £320m in the last six months of reported figures.
Why are fines increasing – and what happens to the money the FCA collects?
How much money is raised from FCA fines?
The financial regulator continues to be robust in fining firms and individuals that fall short of its standards.
The Guardian article says that the FCA ‘imposed more fines on companies in the first half of 2019 than in the previous three full years’.
This willingness to penalise and publicise firms’ regulatory shortcomings is nothing new – we’ve reported previously that the Authority’s fines rose tenfold from 2016 to 2017.
In the six months to the end of June 2019, the regulator imposed 10 fines worth a total of £319.2m – more than five times the annual total for 2018 of £60.5m, and already higher than the £311m combined total for the previous three years.
The fines were in response to issues ranging from anti-money laundering failings to insurance mis-selling. Greater awareness of potential scams and prohibited activity might also have contributed to this increase, with growing numbers of regulatory breaches reported to the FCA.
As we reported recently, 2018/19 saw the FCA receive a record number of reports to its unauthorised business department about potential unauthorised activity.
Where does this money go?
Since April 2012, the money collected from FCA fines has gone to the Treasury. Some of this money has been used to benefit charities – military charities, in particular.
In December 2014, then-Chancellor George Osborne announced that all proceeds from LIBOR fines would be spent on military and so called ‘blue light’ causes – including funding to support air ambulances and provide investment for GP practices across the UK.
The most recent information on this on the FCA’s points people to its 2013-14 business plan, which shows that £40.6m of the money was accounted for in its annual funding requirement.
Is the money being used for the right things?
Back in 2015, a Money Marketing article asked whether the money raised should be used ‘to lower the fees of firms who are not guilty of wrongdoing, rather than to boost the Exchequer’.
The article failed to get a full breakdown from the Treasury as to exactly where the money to date had been allocated, and estimated that as of that date, over £1bn remained unaccounted for.
This lack of accountability led some of those quoted in the article – including lawyers and regulatory consultants – to question the current approach. Some felt that the money should be used for financial education, to help prevent the types of issue that led to the penalties in the first place.
Others thought that money should be ploughed back into the industry and, as the article suggested, used to offset the fees of firms who have good governance. Though some wondered whether taking money previously given to charity and using it to benefit an already-wealthy industry would send the wrong message.
How to avoid an FCA fine
The regulator is clearly not shy of penalising those firms that fail to meet its requirements. If you comply with the FCA’s regulations, your chances of being subject to their financial penalties are greatly reduced.
You can start by taking some simple actions:
- Be clear on what you are providing. The FCA recently produced its Perimeter Report, providing details on what the Authority does and does not regulate.
It’s important that your approach – and your financial promotions in particular – takes account of this. There’s an increased focus on integrity as the result of recent events; the collapse of London Capital & Finance, for instance, and the troubles surrounding the Woodford Equity Income fund.
- Produce compliant promotions. As well as making it clear which elements of your offering are regulated or not, you need to include all mandatory information. Make sure that terms and conditions are clear and prominent. Include all the relevant risk warnings and disclaimers.
- Follow the regulator’s guidance on suitability.
- Comply with any specific rules for the products or services you promote. Don’t over-promise, particularly when it comes to potential returns. Follow specific requirements under MiFIDII and PRIIPs if relevant.
Put in place a culture of compliance
Good governance is a pre-requisite if you want to avoid negative attention from the regulator, and the potential for hefty fines.
Embedding a culture where good governance is in-built can be a challenge, but our free whitepaper, How to embed a compliance culture within your business has tips that can help. The whitepaper is free, and you can download a copy from our resource library.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.