FCA accepted settlements for 97% of cases between 2010 and 2013


Prominent British law firm Freshfields has conducted research with regard to how fiscal penalties were collected by the Financial Conduct Authority (FCA), concluding that 97% of the £943 million in fines were the result of a settlement between the firm itself and the FCA.

Freshfields undertook the labor intensive task of investigating FCA case that have now been closed, which span across a three year period, from 2010 to 2013, to discover that rather than facing the potential consequences and expense of contesting decisions made by the FCA which accuse firms of malpractice, the vast majority of companies under its auspices have simply paid a settlement to the FCA without further adieu.

Rather unlike the system across the pond in the United States, the FCA hands down fines and they are duly paid. American companies which report to the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), which preside over the non-bank financial services sector and electronic trading business in the country well renowned for its cast-iron consumer protection laws, often engage in long, protracted lawsuits with regulatory authorities, with the CFTC having a specific procedure for responding to any declaration of malpractice by submitting reports which state the company’s view.

These are then examined by senior lawyers – the majority of CFTC commissioners are senior government-level attorneys – often resulting in firms being prosecuted Prominent British law firm Freshfields has conducted research with regard to how fiscal penalties were collected by the Financial Conduct Authority (FCA), concluding that 97% of the £943 million in fines were the result of a settlement between the firm itself and the FCA.

Freshfields undertook the labor intensive task of investigating FCA case that have now been closed, which span across a three year period, from 2010 to 2013, to discover that rather than facing the potential consequences and expense of contesting decisions made by the FCA which accuse firms of malpractice, the vast majority of companies under its auspices have simply paid a settlement to the FCA without further adieu.

Rather unlike the system across the pond in the United States, the FCA hands down fines and they are duly paid. American companies which report to the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), which preside over the non-bank financial services sector and electronic trading business in the country well renowned for its cast-iron consumer protection laws, often engage in long, protracted lawsuits with regulatory authorities, with the CFTC having a specific procedure for responding to any declaration of malpractice by submitting reports which state the company’s view.

These are then examined by senior lawyers – the majority of CFTC commissioners are senior government-level attorneys – often generating intensive and costly investigations into the activities of companies and their internal procedures.

The findings by Freshfields imply that very few British firms are issued with court orders, and simply keep the metaphorical stiff upper lip before entering into a settlement with the FCA, quite contrary to firms in the US which often end up with a large fine and a series of court cases.

Indeed, whilst £943 million appears a substantial sum, it pales into relative insignificance when compared to the large scale fiscal penalties issued by the CFTC which relieved firms of over $1.7 billion in sanctions and penalties (excluding restitution) in 2013 alone.

In one specific case last year, the CFTC ordered UBS to pay a $700 million civil monetary penalty for its part in colluding with other banks, inducing interdealer brokers to spread false information and influence other banks; and making false LIBOR submissions to protect UBS’s reputation during the global financial crisis.

A major factor in these differences is that when the Financial Services Authority (FSA) was disbanded in 2013 after 28 years of regulatory responsibility for Britain’s financial markets, the oversight of banks was placed with the Bank of England’s Prudential Authority. This returned power with regard to ensuring the largest banks in the world conduct ethical business to the central bank, whilst all non-bank activity fell under the supervision of the newly created FCA.

Whilst the CFTC goes in to great detail in ensuring that in addition to large fines, disgorgements and restitutions are obtained from companies when found to be in the wrong in order to compensate clients, the FCA relies on companies paying their fines before any action is taken, with customers being able to resort to the government-backed investor protection schemes which are effectively akin to uninsured loss pools.

Whilst America will hold firms which fail to comply with rules or seek to bilk their customers directly accountable for their actions and order them to compensate clients in addition to legal costs, prosecutions and fines, the UK’s authorities will quite clearly accept a pre-agreed monetary amount and close the case.

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FCA accepted settlements for 97% of cases between 2010 and 2013

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