The FSA has published plans to create a consistent and more transparent framework for calculating financial penalties that could mean some fines treble in size, which may create friction within the industry.
According to a release by the FSA, the new plans reflect the regulators determination to change behavior and address concerns that firms are repeatedly failing to improve standards (e.g. in relation to mis-selling to consumers and market misconduct).
Yet these proposed changes have attracted criticism. Jonathon Crook, partner at law firm Eversheds, says: “The proposals for non-market abuse cases involving, for example, the mis-selling of financial products are draconian for both firms and individuals. The FSA is proposing substantial fines for individuals who breach their regulatory obligations. An example put forward by the FSA includes a fine of 25% of salary for failings in the discharge of oversight functions even where the failings are not deliberate or reckless but raise issues of competence. How this all will work in practice remains to be seen. Whilst the FSA clearly wants to spread fear through all levels of the financial services sector as to the consequences of getting things wrong, there are serious questions as to whether what is being proposed is the way to approach matters.”
Fining individuals for failing to do their job competently raises many issues. In a time where compliance and risk mangers are in high demand, added pressure of heavy fines may make these important roles unduly unattractive.
On industry source also put forward the notion that the FSA may not be the organization best suited for fining individuals for incompetence, given the role of regulators in the recent financial downturn.
Find the FSA consultation paper on financial penalties here
Giles TurnerNew Editor