Fines imposed on banks and other City firms by the financial regulator have slumped to the lowest annual figure since the start of the financial crisis and less than 3% of last year’s total.
With a few working days left until the end of the year, the Financial Conduct Authority has dished out 23 fines worth £22.2m, down from 40 in 2015 when the total was £905m.
The total fell because blockbuster fines doled out in the past two years for banks’ rigging of foreign exchange markets and the benchmark Libor interest rate were not repeated. The FCA’s fines go to the Treasury, which has used them partly to fund worthy causes.
Aviva received the biggest fine of 2016 – £8.2m for lax oversight of an outsourcer looking after clients’ money. Aviva’s penalty was dwarfed by the £284m handed to Barclays last year for foreign exchange manipulation. That record fine was more than 10 times the total for 2016.
This year’s figure is the lowest since 2007, when the FCA’s predecessor, the Financial Services Authority, imposed £5.3m of fines. The annual bill increased to £22.7m in 2008 as the FSA responded to accusations of going soft on the City and rose each year to a peak of £1.5bn in 2014.
The slowdown in fines coincides with a turbulent period for the FCA that has left observers questioning its approach. Its former boss, Martin Wheatley, was forced out last year by the then chancellor George Osborne.
Wheatley’s uncompromising stance alienated the City. After banks waged a campaign for less aggressive regulation, Osborne declared after the 2015 election he wanted a more harmonious settlement with the financial industry.
Andrew Bailey, who took over as the FCA’s chief executive in July, said the drop-off in fines should not be read as a softening of the regulator’s approach.
Bailey said: “If we were to maintain the level that we had a few years ago, it would imply we were having something on the level of Libor and foreign exchange every year. If that happened, we would be asking ourselves: ‘What is going on?’ We would need a major blowup every year to maintain that level of activity and that isn’t our objective.”
When Osborne recruited Bailey from the Bank of England, where he ran its regulatory division for three years, banks hoped he would be less confrontational than Wheatley.
Peter Snowdon, a partner at the law firm Norton Rose Fulbright, said: “City firms think there has been a change in approach and that the new regime wants to be seen as less strident than the last one. Even taking into account the very large fines last year, that change is arguably reflected in the drop-off in fines.”
This year was also the first since 2007 that no UK bank was fined. The big four lenders – Lloyds, Royal Bank of Scotland, HSBC and Barclays – have paid out almost £1.4bn since 2007, peaking in 2014 when all four were penalised and their fines amounted to £659m. The banks have paid big fines for shoddy treatment of retail customers as well as for manipulating markets.
James Daley, the managing director of consumer group Fairer Finance, said: “The level of enforcement and fines we saw during the Wheatley era was probably about right and slowly we are seeing banks starting to slip back into bad habits. The sector has got miles to go before we can say it’s serving consumers well and the regulator has got as big a task as it had five years ago.”
The FCA has taken a tough line on some matters since Bailey took over. In August, it extended the deadline for claims for mis-sold payment protection insurance, increasing the likely cost to the banks. Last month, it proposed measures to increase competition between fund managers and it announced clampdowns last week on the spread-betting industry and crowdfunding.
Snowdon said: “Where they think they have identified inappropriate behaviour in the market, they are quite focused on it. Maybe they are shifting their emphasis to intervene earlier in the process rather than just fining people.”
The fall in fines could reduce the amount available to the chancellor for supporting good causes. In 2012, Osborne diverted fines, previously used to fund the FCA, to the Treasury and pledged to use the money for armed forces charities and the emergency services.
In last month’s autumn statement, Philip Hammond, Osborne’s replacement, said £102m of Libor fines would be used for good causes. The Treasury has received about £3bn from the FCA since the rule change. Any money not allocated for specific causes is used for general spending.
Top five fines in 2016
- Aviva £8.2m
- Sonali Bank (UK) £3.3m
- Towergate Underwriting £2.6m
- CT Capital £2.4m
- WH Ireland £1.2m
Top five fines in 2015
- Barclays £284m
- Deutsche Bank £227m
- Bank of New York Mellon £126m
- Lloyds Banking Group £117m
- Barclays £72m
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