Fines dished out by the Financial Conduct Authority (FCA) took a massive leap in 2017, increasing tenfold year-on-year.

Why was this, and what can you do to make sure your firm avoids a penalty?

What were FCA fines for in 2017?

The regulator imposed penalties of £229.4 million from January to December 2017, up from £22.2 million in 2016.

In financial terms, while eight penalties were against individuals, the vast majority of fines were paid by businesses: £229 million compared to a combined £436,000 for individuals.

The year’s biggest penalty was the £34.5 million enforced on Merrill Lynch International for reporting failings, followed by the £27.4 million paid by Rio Tinto for breaching accounting standards.

According to an analysis by Bloomberg, the fines show a return to a ‘new normal’ after a dip in 2016, ‘returning to figures more commonly seen from the regulator in the last five years’.

And a Citywire article on the news says that ‘While the rise in penalties year-on-year sounds stark, for context, the FCA imposed £1.5 billion in fines in 2014 and £905.2 million in 2015, during the peak of the Libor and FX market manipulation scandals’.

Clyde & Co partner John Whittaker, quoted in that article, said: ‘A tenfold increase is significant but it’s worth remembering that this is the second lowest year of fines over the past five years.

He goes on to say that ‘….it will still be worrying senior executives. Especially because it appears that the regulator is continuing to place greater attention on individuals than in previous years.

A focus on individual responsibility

Whittaker cites the Senior Managers & Certification Regime (SMCR) as something that could shift the proportion of fines more towards individuals.

In July last year, the FCA announced plans to extend it to apply to almost all regulated firms, and we asked whether the new regime would increase your risk of an FCA fine.

At the time, we picked out some key actions to help ensure the SMCR doesn’t increase your chances of being fined. These apply not just to the new Regime but to all areas of business if you want to avoid falling short of the FCA’s expectations.

How can your firm avoid an FCA penalty?

As we’ve noted before, the regulator is all about firms taking responsibility for their own actions, rather than using a tick-box approach to meet minimum required standards.

Achieving this compliant culture might seem a big step away from a governance approach based on ticking boxes. But there are some simple steps you can take to move towards an ethos where good behaviours are embedded

  • A good governance message needs to start at the top. Make sure your firm has a ‘do as I do’, not a ‘do as I say’ approach
  • Make sure everyone understands the regulatory push for self-governance; this isn’t something that will go away
  • Emphasise the benefits to your brand of good governance
  • Make it easy for everyone in your firm to find compliant materials like presentations
  • With the pressures on your team continuing to grow, look at ways to reduce your workload, whether that’s by employing regtech to improve regulatory compliance or identifying how you can cut compliance administration
  • Consider mandating compliance approval via automated workflows to avoid breaches slipping through the net

Source: Perivan Technology

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