Financial penalties
The penalties chart shows the amounts we have levied in financial penalties since 2000, and the numbers of cases resulting in a financial penalty.
During the year 2000/1 (i.e. from April 2000 to April 2001) the Enforcement Division was, along with the rest of the FSA, busy preparing for the new legislation. This included making sure that we completed as many of our cases as possible, especially the smaller cases, before the new legislation.
You can see this activity reflected in the figures for 2000/1, which show that we imposed 79 penalties, with total value of financial penalties of £5,847,748.
Some of this activity was carried over into the 2001/2 financial year. During that year, on 1 December 2001, the FSA assumed its powers and responsibilities under the Financial Services and Markets Act 2000 (FSMA). We continued our efforts to complete cases before the new legislation, and at the same time we began to see the practical effects of the new legislation on our workload (more on that in the next paragraph); the total number of financial penalties began to decrease (76), while the total value of financial penalties began to increase (£10,062,597).
This is because FSMA gave the FSA certain statutory objectives (relating to market confidence, public awareness, the protection of consumers, and the reduction of financial crime) and set out some principles of good regulation (including the need to use resources in the most efficient and economic way). The Enforcement Division was given new powers in relation to:
- the investigation and enforcement of market abuse;
- insider dealing;
- breaches of the money laundering regulations; and
- mortgages, insurance, friendly societies and credit unions.
The combined effect of all of this is that we now take a risk-based approach when deciding which cases to investigate. In simple terms, this means concentrating on those cases that are really significant in terms of effect on consumers or markets. You can see this new approach reflected in the figures for 2002/3 - with 16 financial penalties totalling £10,119,000 and for 2003/4 – with 21 financial penalties totalling £12,425,000.
Our risk-based approach continues to be reflected in the figures for 2004/2005, with 31 financial penalties totalling £22,249,000. The apparent huge increase in the value of financial penalties compared with previous years is accounted for by a single penalty of £17,000,000 which we imposed on Shell in August 2004 for serious misconduct amounting to market abuse. Without the Shell penalty, the total value of financial penalties is £5,249,000. The increase in the number of penalties is partly explained by the fact that some investigations resulted in financial penalties upon multiple parties for related misconduct.
In 2005/2006, we imposed 17 financial penalties totalling £17,430,860. £13,960,860 of the total figure is accounted for by a single penalty we imposed on Citigroup Global Markets Limited (CGML) in June 2005 for failing to conduct its business with due skill, care and diligence and failing to control its business effectively when it executed a trading strategy on European government bond markets in August 2004. In this instance the financial penalty is composed of two elements: i) a relinquishment of the profits earned from the bond trading of £9,960,860, and ii) an additional penalty of £4 million.
In 2006/07, we imposed 32 financial penalties totalling £14,661,143. £6,363,643 of this is accounted for by a financial penalty we imposed on Deutsche Bank AG (Deutsche) for failing to observe proper standards of market conduct and failing to conduct its business with due skill, care and diligence. We also imposed a financial penalty of £350,000 on Deutsche's former Head of European Cash Trading for being knowingly concerned in the misconduct which resulted in the breaches. In November 2006, we imposed a financial penalty of £1,225,000 on General Reinsurance UK Limited for its involvement in certain illegitimate purported reinsurance transactions between 1999 and 2004.
In 2007/08, we imposed 21 financial penalties totalling £4,449,500. £1,260,000 of this is accounted for by a financial penalty we imposed on Norwich Union Life for not having effective systems and controls in place to protect customers' confidential information and manage its financial crime risks. We also imposed a financial penalty of £1,085,00 on HFC Bank Limited for failing to take reasonable care to ensure that the advice it gave customers to buy Payment Protection Insurance (PPI) was suitable, and for failing to have adequate systems and controls for the sale of PPI.
Moving in to the current financial year (2008/2009), as at 24 November 2008 we have imposed 42 financial penalties totalling £20,287,683. £7,000,000 of this is accounted for by a financial penalty imposed on Alliance & Leicester plc for serious failings in its telephone sales of payment protection insurance.
"Any financial penalties that we levy are not treated by us as income. Instead they are rebated to fee-payers in subsequent financial years.
Details of how we do this can be found in our Consolidated Policy Statement on fees."