FCA levies record fines – how to stay out of its sights

Dec 23rd '19

This year, the Financial Conduct Authority (FCA) issued fines totalling £391.8m – up more than 550% on last year’s total.


This is according to research by law firm RPC, quoted in a City a.m. article.


What has driven the increase in fines?

The largest fines issued this year follow a crackdown on the mis-selling of financial products; fines relating to mis-selling accounted for £163m.


The mis-reporting of financial data accounted for £62.6m of the total.


As noted in July this year that the regulator’s fines had totalled £320m in the last six months of reported figures. Guardian article in the same month detailed some of the largest fines handed out by the regulator so far in 2019.


In October, the Authority fined broker Tullett Prebon (Europe) Limited £15.4 million for failings in skill, care and diligence.


Mis-selling in the spotlight

Standard Life received the largest fine for mis-selling in the last year, £30.8m for mis-selling pension annuities.


Reporting on the fine statistics, the Belfast Telegraph made the connection between historic lows in Bank of England base rates and a shift in saver behaviour towards ‘more financially risky mini-bonds and investment vehicles that promise high returns but have been found to not explain the true risks to potential customers’.


This article last month on the FCA’s temporary ban on the promotion of speculative mini-bonds, another step the regulator is taking to minimise risk to consumers.


The regulator’s commitment to protecting consumers from financial mis-selling was a key element of its 2019-20 business plan, and in a blog in May, we noted that integrity was in the spotlight following the Authority’s issuing of Decision Notices against three firms and five individuals for ‘acting without integrity’ in relation to their pension advice business.


Reporting errors all too common

Similarly, errors in reporting financial data are occurring more often than the regulator would like. Recent information shared by the FCA showed that a fifth of UK fund managers have made errors in transaction reporting under MiFID II.


Among this year’s penalties, Goldman Sachs saw a £34.3m fine in March for its failure to provide complete and timely data on a range of transactions over a 10-year period.


What can you do to try and avoid a fine?

Preventing compliance breaches is essential for any firm wanting to keep out of the regulator’s cross-hairs and avoid being penalised.


Some steps you can take to improve your own regulatory compliance:


  1. Understand which of your products and services fall under the remit of the Financial Conduct Authority. The regulator’s recent Perimeter Report is a useful document, detailing what the FCA does and does not regulate.
  2. Ensure your financial promotions measure up. You need to be clear on which elements of your offering are regulated and which are not. You must include all mandatory information, including all the relevant risk warnings and disclaimers. Terms and conditions have to be clear and prominent.
  3. It’s not just the content of your promotions that need to fit the bill. Your review and approvals process also needs to be up to scratch, with an audit trail that meets the regulator’s requirements.
  4. Follow the FCA’s guidance on suitability.
  5. Comply with any specific rules for the products or services you promote. Don’t over-promise, particularly when it comes to potential returns. Follow specific requirements under MiFIDII and PRIIPs if relevant.
  6. Make sure your reporting is on track. You might want to explore the potential for automation; automating some of your processes can help to ensure your data is accurate, to mandate Compliance sign off of materials and data leaving the firm, and to make your procedures more robust.


Make compliance a central part of your corporate ethos

One thing that, probably more than anything else, helps firms to stay on the right side of any regulator is entrenching a compliant culture within the organisation. Making compliance a central part of the way you do business means making behaviours and processes that support good governance an inherent part of your approach.


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