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FCA fines triple to £1.5bn in 2014 but drop off expected as regulators switch focus to individuals

After the landmark fines issued to banks over Libor and foreign exchange market manipulation, the Financial Conduct Authority (FCA) saw the total value of penalties triple to £1.47bn in 2014. However, the increase looks to set a high-water mark as enforcement agencies switch attention to individuals.

The breakdown of fines is revealed in research by financial services consultancy Kinetic Partners in its Global Enforcement Review 2015, which also covered the US and Hong Kong enforcement agencies finding a similar theme of rising penalties but a shift in focus to individuals.

The FCA’s £1.47bn in fines last year comes after the regulator levied charges of £474m in 2013. In conjunction with a drop in the number of fines from 51 to 46, the report found the average value of fines had leapt by 370% from £9.9m in 2013 to £36.8m last year.

However, 2014 looks set to be a standout year with total penalties expected to fall in the future. Slaughter and May’s head of financial regulation, Jan Putnis said: ‘We may have reached a high watermark in monetary terms on fines for banks in the UK, and it is widely recognised that further record fines are likely to lack impact. There is therefore now even greater focus on individuals, although this will take a while to feed through.’

Ashurst regulatory partner Rob Moulton agreed that 2014 could be a peak for two reasons: ‘First, let us hope there is nothing worse than Libor and FX to follow. Second, big fines for banks no longer grab the headlines. Regulators are far more interested in holding senior managers to account. Bans for individuals could, to some extent, replace big fines for banks as the means by which the regulator will try to get its message across.’

The shift in regulators’ attention is expected to filter through with the first individuals fined for Libor-related offences at the start of this year. This comes after FCA revenue from individual actually fell from £5m in 2013 to £3m in 2014. But, such a change of focus throws up additional questions for the regulator. Putnis said: ‘The real question is what to do next. Enforcement against individuals is extremely hard because they are much more likely to put up a strong defence when their livelihoods are on the line. Regulators therefore need to be very sure of their ground before committing the significant resources that these cases require.’

For financial regulatory lawyers who have become used to handling large complex cases for corporates a fall in work is anticipated but is expected to be offset by mandates flowing from representing clients in cases involving former employees who could make harmful allegations.

The review also looked at the Securities and Exchange Commission (SEC) and Hong Kong’s Securities and Futures Commission (SFC) finding a similar theme. SEC’s fines for the 2013/14 financial year totalled $4.6bn compared with $3.4bn in 2012/13 coming in off the back of a rise in enforcement actions from 686 to 755. In Hong Kong, the SFC saw fines rise 50% from HK$41m in 2013 to HK$63m in 2014.