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Toughening up: UK watchdogs clamp down on corporate wrongdoing as fines spike 270%

Regulatory partners expect a busy 2016 as EY figures show UK regulators have ramped up the number of fines and sentencing for corporate wrongdoing.

EY’s Investigations Index shows the total sum of fines issued to businesses and individuals by the UK’s key regulatory bodies has increased by 271% over the past two years. Some £2.45bn worth of fines have been issued since 2013, with the average penalty increasing nearly threefold from £10.8m to £42.3m over the same period.

Prison sentencing following an investigation is now more common, increasing by 124% over the same period, with company directors facing an average prison sentences of four years or more.

‘Clients want more non-contentious people, especially banking clients,’ said Ashurst disputes partner Ed Sparrow. ‘They want lawyers who can advise clients about how they to structure their controls to comply with the regulatory requirements.’

EY’s index examined a total of 231 cases from 1 October 2013 – 30 September 2015, and was based on data from regulatory bodies including the Financial Conduct Authority (FCA), Serious Fraud Office (SFO), Competitions and Markets Authority (CMA) and the Office of Fair Trading (OFT).

The research showed 58% of cases investigated by the SFO resulted in prison sentences, and 56% of the cases the FCA investigated resulted in fines. Also worth noting is of the 125 cases investigated by the CMA and OFT in the past two years, 119 involved a proposed or completed merger or acquisition.

The head of EY’s UK fraud investigation and dispute services team John Smart said: ‘UK regulators are getting tougher on financial crime. In the wake of recent corporate scandals and growing political pressure, there seems to be a greater focus by the regulators to pursue cases that may once have been considered “too difficult”, to ensure those responsible for wrongdoing are held to account.’

EY partner Sanjay Bhandari added: ‘Historically, the management of owner-operated companies have tended to be more likely to be the subject of individual prosecutions for white collar crime as they may be less complex cases. However, increasingly, regulators and law enforcement agencies seem to be demonstrating a greater willingness to take on individuals in more complex organisations.’

The research follows the news Herbert Smith Freehills client ICBC Standard Bank is about to complete the UK’s first deferred prosecution agreement (DPA) with the SFO. The DPA was introduced in early 2014 to encourage companies to self-report crimes for more lenient penalties.

Irwin Mitchell head of regulatory and criminal investigations group Paul Haycock said: ‘This is the new era of large corporate fines for corporate crime imposed through DPAs. Providing businesses engage early with the SFO, don’t wait until the SFO ‘find out’ and are sensible with their own internal investigations and the provision of evidence, then a DPA may be a sensible alternative to risk of corporate prosecution by the SFO and all the damage that entails.’