Fines hit £34.8m, with Aon leading the way for brokers

The value of fines handed down by the FSA this year jumped 53% on 2008 (to Dec 31) to a record-breaking £34.8m, says City law firm Reynolds Porter Chamberlain LLP (RPC).

One of the heaviest fines in the whole of the financial services industry was the £5.3m slapped on Aon for breaching anti-corruption and bribery controls in January.

According to RPC the average fine handed down by the FSA in 2009 was £891,000, up 97% on 2008 when it was £453,000.

The average fine against individuals jumped 60% to £70,303 in 2009 up from £43,854 in 2008.

Steven Francis, Partner in RPC’s Financial Services team, comments: “The FSA is playing to many different audiences, and unfortunately for financial services companies, most of them want the FSA to punish the sector.”

“The FSA seems to be looking to impose ever bigger fines and some people have started to ask if there is a certain amount of grandstanding in these fines, especially with the Conservative Party threatening to break up the FSA.”

“If the FSA continues to rack up the pain against the financial services sector then at some point the sector will become scared of its own shadow and that can’t be a good thing for London.”

There were eight £1m+ fines against financial services companies this year.

RPC explains that the increased size of each fine from the FSA has a far bigger knock on impact on the cost base of the financial services sector, as firms are compelled to undertake ever more in-depth, regular and expensive reviews of their compliance systems. Even firms with a strong compliance culture and a spotless record might be panicked by these record fines into double and even triple checking perfectly adequate compliance systems

Adds Steven Francis: “Many of the biggest fines handed down by the FSA over the last year have related to weak control systems rather than incidents where the clients of the firm have actually lost any money. Frequently these problems with paperwork are actually discovered by the firm itself and then reported to the FSA. In those kinds of cases firms are obviously surprised by the severity of the fines they are now being faced with.”

“Such is the complexity of the FSA’s rules and regulations that even firms with the very strongest of compliance cultures can find themselves suffering at the hands of the FSA’s new “get tough” approach.”

“There’s every reason to think that the financial services sector should plan for more FSA activity in 2010. What also concerns is the threat by the FSA to try and take basic regulatory infractions and prosecute them as criminal cases.”

Francis says that the FSA is also handing down bigger fines to individuals as part of its “credible deterrence” policy.

“The FSA is adopting a more aggressive approach against individuals by handing down bigger fines to managers and other important personnel in regulated firms as well as to the company itself.”