Increase in FSA Fines in 2010/11 Largely Driven by a Handful of Large Penalties; NERA Analysis Reveals Shifts in Enforcement
11 July 2011
NERA Economic Consulting Launches Trends Report Series on Regulatory Enforcement in the UK Financial Markets
NERA’s Proprietary Database Tracks Fines and Enforcement Activity since April 2002
London -- NERA Economic Consulting, a leading global provider of economic advice and analysis in business, legal, and regulatory matters, announced today the release of an in-depth report analysing trends in regulatory enforcement by the UK Financial Services Authority (FSA).
In addition to a detailed analysis of trends since April 2002, the authors of Trends in Regulatory Enforcement in UK Financial Markets, NERA Vice President Paul Hinton and Senior Consultant Robert Patton, provide background on the role of financial penalties in enforcement, discussion of recent developments in enforcement, and a look ahead to expected changes in enforcement policy in the UK.
“As recently disclosed by the FSA, UK financial enforcement activity has reached record levels as measured by the number and aggregate amount of fines imposed. However, behind these headline figures is a more nuanced picture: aside from a handful of recent fines among the largest ever imposed, the average size of fines has actually declined slightly”, said Mr. Hinton. Mr. Patton added, “The FSA is imposing more fines than ever before, but not across the board; while enforcement has targeted certain conduct, such as unsuitable investments and mis-selling, market abuse cases against firms remain rare.”
Key Findings of Trends in Regulatory Enforcement in UK Financial Markets
- Aggregate fines assessed by the FSA rose to £98.6 million in the 2010/2011 fiscal year from £33.3 million in 2009/2010.
- The number of fines nearly doubled in 2010/11 as compared to the previous year, for both firms and individuals. For individuals, the number of fines assessed in 2010/11 was more than 10 times the average over the six years prior to 2008/09, before the FSA adopted a more assertive enforcement stance.
- The increased number of fines, imposition of several very large fines, and increase in the number and size of fines against individuals starting in 2008/09 are consistent with a shift from “light touch” enforcement to a tougher “credible deterrence” approach and a recent enforcement focus by the FSA on sanctions against individuals.
- A high proportion of the all-time top 10 fines have been assessed over the past three fiscal years, and in 2010/11 in particular. Excluding such exceptional fines, the average fine against individuals increased by 37 percent in 2010/11, while the average fine against firms outside the top 10 actually declined by 16 percent. The net effect of these two trends was a decline in average fine amounts, excluding exceptional fines, of 7 percent.
- The largest fine levied against an individual from April 2002 to March 2011 was £2.8 million, against Simon Eagle in May 2010 for market manipulation. This fine is nearly three times the second- largest fine for individual misconduct. The largest fine imposed on a firm to date was £33.3 million in June 2010 against J.P. Morgan Securities, for mishandling of client assets.
NERA has developed a proprietary database of fines and other enforcement activity by the FSA, covering the period beginning 1 April 2002, and has classified enforcement activity according to the underlying alleged misconduct described by the FSA. Additional findings in the report include:
- Over the past three years, 22 fines for insider dealing have dominated FSA fines for market integrity violations (behaviour that distorts or otherwise negatively affects financial markets). Fines for market integrity violations have been a relative rarity.
- Recent increases in the number of customer protection and compliance failure fines are mainly driven by action against "unsuitable investments & mis-selling", with 55 such fines over the past three years.
Trends in Regulatory Enforcement in UK Financial Markets can be downloaded from: www.EnforcementTrends.com.
NERA’s "Trends" Series
NERA has been analysing trends in enforcement and shareholder class action litigation for more than 15 years. Two reports analysing trends in US Securities and Exchange Commission enforcement actions are published each year. In addition, NERA publishes semi-annual reports analysing shareholder class action litigation trends in the US, and annual reports on trends in Australia, Japan, Italy, and Canada.
About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.
NERA’s clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world’s largest economic consultancies. With its main office in New York City, NERA serves clients from more than 20 offices across North America, Europe, and Asia Pacific.
