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The UK financial regulator is giving itself the power to impose bigger fines on individuals after being forced to reduce its penalties by recent court challenges, including one by former Barclays boss Jes Staley.
The Financial Conduct Authority said it planned to gain the ability to “increase for deterrence” a fine calculated on the basis of a person’s income when this is subsequently reduced by their employer to punish the same misconduct.
The move comes after a judge forced the FCA to cut its fine for Staley from £1.8mn to £1.1mn last year, despite upholding a ban on the former Barclays chief for “recklessly” misleading the watchdog over his ties to convicted sex offender Jeffrey Epstein.
The court ruled the FCA should not have included Staley’s deferred share payments that were later cancelled by Barclays when calculating the size of his fine as a percentage of his total income in the year of the wrongdoing.
The FCA said it would no longer count as income bonuses that it knows will never be received. But it said it would also allow itself to increase fines in such cases as part of a wider revamp of its rules for calculating penalties outlined in a consultation published on Monday.
The watchdog said it planned to increase its minimum fine for “serious market abuse” from £100,000 to £150,000 to reflect inflation since the rule was introduced in 2010.
“We also want to ensure that this figure remains up to date and a suitable deterrent for the future,” the FCA said, adding that it would automatically adjust the minimum fine level in line with inflation every two years.
Another change to the watchdog’s rules will strengthen its ability to impose higher fines on rich people who have low annual incomes but vast wealth.
“This change will make clear that we may increase a penalty in all cases where it may not act as a deterrent given an individual’s income or net assets,” the FCA said.
The push to levy bigger fines underlines the FCA’s determination to crack down on market abuse and other financial breaches, despite coming under mounting pressure from the government to ease regulation in support of economic growth.
“Especially striking is the proposal to take overall net worth into account — fining a rich crook in the millions will send out a very powerful message,” said Simon Morris, a partner at City of London law firm CMS.
Last year, a court forced the regulator to reduce two of its fines for former bond traders at the UK subsidiary of Japan’s Mizuho Financial Group while upholding their bans for “market manipulation” in Italian sovereign bond futures.
London’s Upper Tribunal cut the fine for one of the traders from £395,000 to £223,400 after saying the FCA should not have included bonuses in the annual income used to calculate the penalty because they were based on work done several years earlier.
Another trader had their fine reduced from £100,000 to £57,600 because they were a junior employee on the desk earning less than their colleagues.
The FCA said on Monday it would no longer count as income “benefits received during the misconduct period but earned in a prior period”.
The regulator also said fines for market abuse could be reduced below its minimum level “for proportionality, mitigating factors, settlement” and serious financial hardship.
It raised the thresholds for serious financial hardship in line with inflation to having an annual income of up to £21,000 and capital of up to £24,000.
