FSA fines "could treble" under new framework

FSA fines "could treble" under the regulator's new income-linked framework for penalty setting.

For firms, fines will be based on up to 20% of the company's revenue from the product or business area linked to the breach over the relevant period.

In non-market abuse cases, the fine will be based on up to 40% of an individual's salary and benefits, including bonuses, from their job relating to the breach.

In serious market abuse cases, the minimum individual starting fine will be £100,000.

The new rules will come into force on 6 March.

In its policy statement ‘Enforcement Financial Penalties' the FSA says: "The imposition of harder hitting financial penalties which better reflect the scale of a firm's wrongdoing will become a feature of enforcement activity in the future."

Three principles - "disgorgement, discipline and deterrence" - are central to the new framework.

Enforcement will follow a five-step process of removing profits made from the misconduct, setting a figure to reflect the seriousness of the breach, considering any aggravating and mitigating factors, the appropriate deterrent effect, and applying any settlement discount.

While the same general factors previously applied, the structure of the framework, as well as more specific percentages for fines, now represent a more "transparent and consistent" approach, the FSA says.

FSA director of enforcement and financial crime Margaret Cole says: "Despite industry opposition we have decided to implement these proposals as we believe enforcement penalties are a powerful tool to help change behaviour in the industry.

"We imposed record fines in 2009, but this new approach further amplifies the deterrent effect of our penalties and sends a powerful message to firms which makes it clear that non-compliant behaviour will not be tolerated."

Law firm CMC Cameron McKenna says the move be the FSA to target individuals will act as a greater deterrent to wrongdoing.

Parter at the firm Ash Saluja says: "Politically, this is an irresistible trend.

"But FSA's increased penalties represent a much more developed strategy of policing firms through targeting individuals - who will be far less well placed to shrug off the fines than their employers might be."