The FCA have reported a growing downwards trend in the amount of fines being imposed between 2014 and 2017. From these figures, we can see that regulations are shifting again, and that right now, the FCA’s focus is on small firms and individuals, but of course, this could all change again soon enough.
So, what’s causing these trends?
In 2014, the total amount of fines to firms was £1,471 Million (M) but this number quickly dropped by nearly 48% to £905M in 2015. That may seem like a huge difference, and it is, but the following year was even less at a miniscule £22M in 2016, this is a 98.5% reduction over the two-year period.
Looking at the FCA’s reports, we can see that the number of firms being fined has reduced with 40 cases of fines reported in 2014, and in comparison, just 22 in 2016. This means that FCA fined just half the firms and individuals that were fined in 2014.
In 2015 there were far more individuals being fined, and less in the way of fines for big banks and firms. Despite there being the exact same number of fines awarded (40), there was a 48% decrease in the total amount of money these fines represented, due to many of these fines being smaller amounts below the £1M mark, and many being less than £100K.
By 2016, there is no sign of fines for big banks at all, with the majority of the report consisting of just 22 small firms and individuals, most of which came under the £1M mark again. Perhaps this indicates an improvement in certain services? Or could it mean something else?
Cause and effect
Of course, there’s always trends happening within financial services, and one of the most noticeable in these reports is the 2014 Forex scandal which saw five big banks being fined a total of £1,114M for failing to meet FCA regulations in their foreign exchange (FX) trading operations. These fines represented a huge 76% of all fines for that year.
The FCA reports that banks took remedial action in addition to their financial penalties, and the following year we saw no more fines related to this Forex. This is a good example of what happens after FCA enforcement – we see adjustment from firms and therefore less remedial action in that particular area, but new trends emerging elsewhere.
What’s happening this year?
It seems that the overall fine amount is coming down and while the year is not yet over, the FCA have reported that they have only fined five firms so far (as of 14/7/17). One of these fines was very large, the other four were relatively tiny amounts.
Of course, we all know that 2017 is the year of Brexit and that comes with its own complications. It’s a possibility that the regulator is giving firms time to sort themselves out while Brexit is going through and perhaps we will see the FCA revisit firms in a couple of years.
Usually, the regulator works on a five to seven year cycle, in order to remediate any lasting issues. Financial services regulation is a delicate balancing act between regulations changing and increasing and financial services adapting to these changes.
How might regulations change now?
Aside from any regulations that may have to change to work around Brexit, the Prudential Regulation Authority (PRA) has recently reported that it will be adjusting the Senior Managers’ Regime to include non-executive directors in response to the increase in fines for individuals.
The focus right now is on improving the conduct of senior management. This is backed up by the FCA, who are looking to adapt their approach to maintaining regulatory requirements to address the increase in new consumer credit regulated firms.
So, while we continue to see decreasing fines for firms, it may not always be this way, and new regulations are already emerging to meet the fine balance of the regulator and financial service providers.
Grovelands will continue to report on the FCA’s remediation practices as 2017 draws to a close, but these are interesting times for financial service providers and no doubt we will see the whole sector continuing to adjust its conduct to reflect these trends.