Out-Law.Com have reported that the Financial Services Authority (FSA) imposed a record £27.3m in fines in 2008/9, compared to an annual average of £14 million in the previous five years
The regulator also tripled the number of senior managers under investigation during the year, fining four of them a total of over £200,000. This follows the FSA’s promise last December to hold more senior managers personally accountable for the poor conduct of their firms.
During 2008/9, its Enforcement Division made use of its full range of civil, criminal and administrative sanctions against financial firms in the UK. These included instigating three prosecutions for insider dealing and successfully concluding the FSA’s first insider dealing trial with two convictions and one custodial sentence.
Over 30 firms were ordered to review their past business, contact consumers and pay redress as appropriate. And a record 58 individuals were prohibited from carrying out regulated activities because of unacceptable conduct, which ranged from market abuse to mortgage fraud or failing to adhere to the FSA’s guidelines for treating customers fairly.
Commenting on the results in his Chief Executive’s report, Hector Sants pointed to a broader change in the FSA’s general approach to regulation.
"When I took on the CEO role, I made clear my intentions to change radically the supervisory approach of the FSA," said Sants. "I set out to ensure that the FSA is seen as a regulator which delivers ‘intensive supervision’ and ‘credible deterrence’. That programme began 18 months ago and we are well on track to achieve that goal by the end of 2009."
The focus has now shifted from ‘principles-based’ to ‘outcomes-focused’ regulation. Historically, the FSA has concentrated on firms’ systems and controls and relied on management to make the right decisions. Principles are still important, but the regulator increasingly sees a need to judge individuals on the consequences of their actions.
"We are now focusing on questioning the overall business strategy of the institution and more generally on the possibility of risk crystallising in the future," said Sants. "This is a fundamentally different way of supervising firms.
"We are now making judgements on the judgements of senior management and taking action if, in our view, those decisions will lead to risks to our statutory objectives," he said. "We believe this move from regulation based only on observable facts to regulation based on judgements about the future is vital to help us deliver our statutory objectives."
While much of the annual report deals with the FSA’s response to the global banking crisis, it also describes progress made on a number of other regulatory initiatives over the last year, including measures to address mis-selling of payment protection insurance and the Retail Distribution Review.
To date Alliance & Leicester have been imposed the largest fine for the mis-selling of PPI at a sum of £7 Million.
The FSA found that the bank had trained its staff to put pressure on customers who questioned the inclusion of optional PPI in a loan.
During the period January 2005 to December 2007, A&L sold around 210,000 PPI policies to customers looking for a personal loan with each policy averaging £1,265.