City regulator's fines drop from £819m to £7m in a year

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Fines imposed by the Financial Conduct Authority (FCA) in the first half of 2016 have fallen to £7.2m – less than 1% of the figure of a year before.

The plunge in fines from £819m in the same period last year follows a period of turbulence for the FCA and coincides with the arrival of Andrew Bailey from the Bank of England as the watchdog’s chief executive.

The number of fines has also fallen, almost halving to 13 from 24 in the first half of last year. Eight of the fines, totalling £3.2m, resulted from an investigation into the failure of insurance schemes for law firms. Two companies and six people were fined.

George Osborne forced out Martin Wheatley, the FCA’s previous chief executive, a year ago after the City complained about his tough approach to regulation. After the Conservatives won the May 2015 election, Osborne said he wanted a new settlement with the banking sector and an end to blaming them for the financial crisis.

Tracey McDermott, who was closely linked with Wheatley’s hard line, took over running the FCA but dropped out of the running for the permanent job in January after an inquiry into banks’ culture was scrapped. McDermott denied there had been any softening of the FCA’s approach.

Osborne chose Bailey to run the FCA soon after McDermott withdrew, recruiting him from the BoE where he ran the regulatory division for three years. Bailey, whom the City regards as less antagonistic, started on Friday.

Peter Snowdon, a partner at the law firm Norton Rose Fulbright, said the drop in fines reflected uncertainty at the FCA, a less aggressive approach and a heavy workload for its staff. “I think there has been a sea change that probably happened after the election with Martin Wheatley and Tracey McDermott going, the cessation of the initiative on banking culture and so on. We’ve had a sense from things we’ve been working on that ‘shoot first and ask questions afterwards’ is not the current mood.”

The FCA declined to comment.

The figure for the first half of last year was inflated by more than £500m of fines for two banks that rigged financial markets including a record £284m imposed on Barclays for manipulating foreign exchange rates. Fines tailed off in the second half of last year to £86m.

The FCA was launched in early 2013 after its predecessor, the Financial Services Authority, was broken up. The FSA was heavily criticised during the financial crisis for going easy on the City and allowing risks to build up in the system.

In March 2009 Hector Sants, the FCA’s then chief executive, signalled a harder line and said the City should be “very frightened” of it. Before this year, fines mounted steadily from £8.4m in the first half of 2009 to a peak of £1.34bn in the second half of 2014 when the FCA under Wheatley dished out £1.1bn of penalties to banks for foreign exchange rigging.

Rachel Souter, a partner at the law firm King & Wood Mallesons said: “I think the figures indicate the FCA is in the process of restocking its enforcement book following resolution of the foreign exchange investigations in mid-2015 and the release of staff who had been fully occupied there. I suspect we will begin to see an uptick in fines in the second half as some of these new investigations begin to reach closure.”

The regulator’s fines were previously used to fund its operations, but in 2012 Osborne changed the law to divert the money to the Treasury. Osborne has handed most of the fines to causes such as armed forces charities and those involved in helping the emergency services. The drop means less money will be available for that purpose.

Powered by Guardian.co.ukThis article was written by Sean Farrell, for The Guardian on Sunday 3rd July 2016 15.58 Europe/London

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