NERA Releases Financial Services Authority Enforcement Trends Report; FSA Fines Against Individuals Reach New Record

26 June 2012

London -- The UK Financial Services Authority (FSA) imposed fines on individuals totaling nearly £20 million in the 2011/12 fiscal year, more than in the previous eight years combined, according to NERA Economic Consulting’s report, Trends in Regulatory Enforcement in UK Financial Markets: Fiscal Year 2011/12, released today.

The FSA imposed £58.7 million in fines on firms, below the previous year’s record-high total, but higher than in any other year. The number of fines imposed on both firms and individuals declined as compared to 2010/11, possibly as a result of the FSA taking on fewer, more complex cases.

Trends in Regulatory Enforcement in UK Financial Markets: Fiscal Year 2011/12, authored by NERA Vice President Paul Hinton and Senior Consultant Robert Patton, analyses trends based on NERA’s proprietary database of fines and other enforcement activity by the FSA. It also provides background on the role of financial penalties in enforcement, discussion of recent developments in enforcement, and a look ahead to enforcement policy of the Financial Conduct Authority.

Additional Key Findings

  • Fines imposed on high-profile individuals have increased steadily in both number and magnitude over the past few years.
  • The number of individuals criminally indicted by the FSA fell in 2011/12 as compared to the prior two years.
  • Increasingly, enforcement actions are being contested in the Upper Tribunal. The Tribunal held five hearings in cases involving contested fines in FY 2011/12 and eight additional cases are pending.
  • Recent increases in penalties have occurred in advance of the widespread official implementation of the FSA’s revised penalty framework. Trends authors note that the wider use of the revised framework, along with the increasing focus on high-profile individuals, may further increase fine amounts in the future.
  • Notwithstanding recently being overturned in the John Pottage case alleging inadequate supervision, the FSA has been quietly successful in other similar cases over the last three years, increasingly fining individuals in compliance and supervisory roles for failing to prevent misconduct committed by others.
  • The mix of fines against individuals shifted in FY 2011/12 as compared to the prior three years, with fewer fines for Insider Dealing and Unsuitable Investments & Mis-selling, but more fines for Failure to Prevent Misconduct.
  • Trends authors observed a surprising near-absence of fines against firms for Compliance Failures. Only one such fine was imposed in 2011/12, as compared to 13 over the prior two years.

"The FSA has continued to increase the level of fines this year.  Average fines against individuals and firms were higher than ever, even though only four fines have yet been determined under the revised penalty guidelines; and it has become routine for the FSA to impose multiple fines each year that equal or exceed £5 million," said co-author Paul Hinton. Co-author Robert Patton added, "An increasing number of enforcement actions are being contested in the Upper Tribunal, which is not surprising in light of the record-sized fines the FSA is assessing against individuals. If the FSA continues to ratchet up enforcement activity against individuals, we are likely to see more and more cases referred to the Upper Tribunal."

Trends in Regulatory Enforcement in UK Financial Markets can be downloaded here.

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.

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