The FSA has published a policy statement on the determination of financial penalties for breaches of the Financial Services and Markets Act 2000 (such as market abuse offences) and certain other regulations (such as the Money Laundering Regulations 2007). The statement sets out a framework which should make the FSA’s penalty setting more transparent and make it easier to predict an expected level of penalty.
Steps to determine penalty
The FSA will take the following steps when determining the amount of a penalty:
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depriving the person of benefits which derive directly from the breach (“disgorgement”);
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setting a figure to reflect the nature, impact and seriousness of the breach, which will differ between cases against firms, non-market abuse cases against individuals, and market abuse cases against individuals (“discipline”);
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adjusting the penalty appropriately if there are any mitigating or aggravating circumstances;
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where justified, increasing the penalty if the FSA considers it necessary to deter the person subject to enforcement or others from committing further breaches (“deterrence”); and
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applying any discount arising from early settlement.
Serious financial hardship
The FSA will consider reducing a penalty imposed on an individual if its payment would result in serious financial hardship. However, the starting point will be that an individual will suffer serious financial hardship only if, as a result of paying the penalty:
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his net annual income will fall below £14,000; and
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his capital (including the equity that an individual has in the home in which he lives) will fall below £16,000, although the FSA will consider the impact a sale of the property might have upon its other occupants or the impracticability of re-mortgaging or selling the property within a reasonable period.
The new penalty framework applies to breaches occurring on or after 6 March 2010.
The policy statement serves as a reminder of the importance of complying with FSA rules for both firms and individuals and the potentially serious consequences of any breach. The policy statement is available here.
