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FSA enforcement: new penalty framework
Practical Law UK Legal Update 8-501-8576 (Approx. 2 pages)
FSA enforcement: new penalty framework
by Sonya Morley, Norton Rose LLP
| Published on 26 Mar 2010 |
This article is part of the PLC Global Finance March 2010 e-mail update for the United Kingdom.
Speedread
On 1 March 2010, the Financial Services Authority (FSA) published a policy statement on enforcement of financial penalties (PS10/4) together with amendments to the guidance in the Decision Procedure and Penalties manual. The revised guidance applies to breaches of the FSA rules taking place on or after 6 March 2010 and, according to the FSA's consultation paper on the proposals, the FSA's aim are greater transparency, improved consistency and higher penalties to achieve credible deterrence.
On 1 March 2010, the Financial Services Authority (FSA) published a policy statement on enforcement financial penalties (PS10/4) together with amendments to the guidance in the Decision Procedure and Penalties manual (DEPP) (the revised guidance), following a consultation period between June and October 2009 (for background on the consultation, see Legal update, Enforcement of financial penalties: the FSA bares its teeth).
The revised guidance applies to any breach of the FSA rules which takes place on or after 6 March 2010. Where misconduct straddles that date, the revised guidance will apply to conduct from 6 March 2010 and the existing guidance will apply to conduct before that date.
The aims of the proposals outlined in the FSA's consultation paper were greater transparency, improved consistency and higher penalties to achieve credible deterrence.
The key changes that the FSA has made to the DEPP are to:
- Apply a five-step approach to determining the penalty for individuals, firms and market abuse cases (step 1= disgorgement; step 2 = discipline; step 3 = mitigating/aggravating factors; step 4 = deterrence; and step 5 = settlement).
- Explain the circumstances in which the FSA will consider reducing the proposed penalty to take account of serious financial hardship.
The starting point to determine the discipline element (step 2) will be to set the penalty based on a percentage of a minimum of a year's "relevant revenue" (for firms, ranging between 0% to 20%) or income (for individuals, ranging between 0% to 40%), or where the conduct continues for longer than a year, for the period of the breach.
In the case of a one-off event, such as an isolated incident of mis-marking, the relevant revenue or income will be that derived during the 12 months preceding the breach. The percentage used will depend on the seriousness, nature and impact of the misconduct, adopting a sliding scale from levels 1 to 5 on the basis that the more serious the misconduct, the higher the percentage applied.
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