Banks and other financial firms have been given a £1.2 billion discount on FCA fines
Banks and other financial firms which are subject to enforcement action by the FCA can receive discounts of up to 30% on their fines if they settle their case. Between 2013 and 2018 banks and other financial firms were given discounts of £1.2 billion by the FCA on their fines.
Lord Sharkey proposed an amendment to the Criminal Finances Bill in March 2017 which would have required banks and other financial firms to identify and take disciplinary action against the staff responsible for the misconduct before they could receive the full discount on an FCA fine.
Lord Sharkey said: “The amendment proposes to put the gigantic discount mechanism to better use. This is a simple proposal. It would give the FCA more power, more say and more insight into how transgressors had modified their behaviour and addressed individual and structural capability. It would give the firms involved a powerful incentive to take proper remedial action – which, unfortunately still seems to be needed.”
In June 2013 the Parliamentary Commission on Banking Standards recommended that the FCA and the PRA conduct a review of their penalty setting framework to allow a “further substantial increase in fines”. Four and a half years later this has yet to be undertaken.
Between 2013 and 2018 the FCA levied 88 financial penalties on banks and other financial firms, fining them a total of £3.1 billion. But firms received discounts totalling £1.2 billion. Without these discounts banks and other firms would have been fined £4.3 billion.
Of the 88 financial penalties levied, on 71 occasions firms received a discount of 30%, on 8 occasions firms received a discount of 20% and on 9 occasions firms received no discount. From March 2017, the FCA has abolished the ability to gain 20% or 10% discounts on fines by settling at later stages in the process but the ability to receive a 30% discount remains. A new process was also introduced to enable firms to partly contest a case and still receive the 30% discount.
Deutsche Bank has received the largest total discount on its FCA fines at £165 million followed by RBS at £157 million and JP Morgan at £155 million. The top 5 discounts applied to individual fines were all to penalties for FX manipulation.
| Top 5 largest discounts on specific fines | |
| UBS | £100,206,000 |
| Deutsche Bank | £97,200,000 |
| Citibank | £96,675,000 |
| JP Morgan | £95,214,000 |
| The Royal Bank of Scotland | £93,000,000 |
Revenue raised from FCA fines (after the deduction of enforcement costs) is received by HM Treasury and is used to fund armed forces and emergency services charities and other good causes.
The Criminal Finances Bill sought to make the legislative changes necessary to give law enforcement agencies, and partners, capabilities and powers to recover the proceeds of crime, tackle money laundering and corruption, and counter terrorist financing.
In October 2016, New City Agenda published the report “Cultural Change in the FCA, PRA and Bank of England: Practising What They Preach?”
UPDATE: 25th April 2017
The Government committed to facilitating further discussion of this issue after the election. The amendment was debated again during the Report Stage of the Criminal Finances Bill on 25th April.
“[The Amendment] creates a powerful incentive for real cultural change in offending firms. If you know that your firm has a powerful financial incentive to identify and punish wrongdoers at any level, that is a powerful incentive to proper behaviour by individuals at all levels. If you know that your firm will have to demonstrate to the satisfaction of the FCA that it has in fact identified and punished those responsible for the misconduct, then misconduct and tolerance of misconduct will be less likely. The recent Banking Standards Board report shows why this kind of action is still necessary. Thirteen per cent of sector employees saw it as difficult to get ahead in their careers without flexing ethical standards, and an alarming 18% had seen people in their organisations turning a blind eye to inappropriate behaviour. Financial punishment is frequently used against firms by the FCA, and ultimately shareholders bear most of the cost of this. Disciplinary action and financial punishment against individual wrongdoers are much more likely to change culture than fines effectively on shareholders.
When these issues were discussed in Committee, the Minister set out the argument that the amendment was unnecessary, and I know—because we spoke this morning—that the FCA takes the same view, but I think it is also fair to say that our conversations on the issue are by no means finished and have not reached a resolution that is satisfactory to either side.
The fact is that the FCA has never done what the amendment proposes. The amendment simply requires it to withhold a proportion of the settlement discount for the reasons and with the effects that I have already outlined. I beg to move.”
The Response from the Government Minister said:
“In summary, we can all agree that this an extremely complex issue, which only seemed to be made even more complex as discussions went on today. We share the same objectives of improving compliance and the culture in the banking sector. Ultimately, the FCA already has significant powers to address the issues underlying the noble Lords’ amendment, not least the power to sanction relevant employees in appropriate circumstances. I trust that the House will see that it is far from clear that the amendment would deliver the positive outcomes that have been described. That being said, I found the discussions today to be very interesting, as did the relevant officials, and hope this has been an equally insightful discussion to the two noble Lords. There might be ways of enhancing the existing regulatory system; the FCA is, in fact, conducting a review of its penalties policy at present, and I know that it would welcome the opportunity to continue this discussion with both noble Lords.
I can confirm that, subject to the outcome of the election, I expect that the Government will consider how best to facilitate further discussions on this issue, and, as I outlined to the noble Lord, Lord Sharkey, this would be my intention. I am very grateful to the noble Lords for their amendment. However, I ask them to withdraw it so that action not be taken in haste. I hope they feel comfortable to do so following some of the undertakings I have given.”
