FCA fines balloon to £320 million in six months

26 July 2019 Consultancy.uk 4 min. read

Amid mounting criticism for the UK’s financial watchdog, the organisation has handed out a record level of fines in 2019. The Financial Conduct Authority has hit companies with a higher collective fee in the first half of the year than the previous three combined.

The auditing work of the professional services world's Big Four has been on the receiving end of stinging criticism from the accounting industry ombudsman, following a string of errors which have allegedly led to the collapse of companies in the UK. This ultimately culminated in the much-heralded Kingman Review saying the FRC was no longer fit for purpose, and should be replaced “as soon as possible” with a new statutory regulator.

The allegation that the country’s watchdogs are asleep at the wheel has not stopped with the FRC, however. The City’s regulator, the Financial Conduct Authority (FCA), has faced mounting pressure in recent times, amid suggestions that it had failed to protect customers of the financial services industry. In response to this, the entity has inflicted more fines on companies through the first half of 2019 than in the previous three full years.

FCA fines balloon to £320 million in six months

In the six months leading to the end of June, the FCA imposed 10 fines worth a total of £319.2 million – more than five times the annual total for 2018 of £60.5 million. The combined total for the previous three years of £311 million is therefore set to be surpassed by as much as double if things proceed at their current rate.

The biggest fine in 2019 so far was the £102 million imposed on Standard Chartered in April for anti-money laundering failings that breached sanctions against Iran. Elsewhere, the Bank of Scotland was stung by a £45.5 million for a failure to disclose information about a £245 million fraud at its Reading branch, while Carphone Warehouse was also handed a £29 million punishment for mis-selling insurance linked to its Geek Squad service. Other big fines saw Goldman Sachs and UBS hit with £34.4 million and £27.6 million fees, respectively, for misreporting millions of transactions over a decade.

Bank of England role

The heightened level of fines comes at an interesting juncture, with the FCA’s Chief Executive Office currently thought to be a leading candidate in the race to become the next Governor of the Bank of England. Andrew Bailey took over at the FCA in 2016, and was initially seen as being more City-friendly than his predecessor, Martin Wheatley, who was forced out by former Chancellor George Osborne. However, with one of the most important public offices in the country up for grabs, this seems to have shifted significantly, with the FCA now markedly more willing to play hardball with the financial sector on Bailey’s watch.

Bailey was Deputy Governor of the Bank of England from April 2013 to July 2016, so would have a notable understanding of the inner workings of the institution. He is now bookmakers’ favourite for the top job, having sailed through a major grilling by MPs regarding his performance as FCA's chief executive officer.

During the select committee probe, MPs questioned Bailey and Chair Charles Randell on the recent suspension of the Woodford Equity Income Fund, which has left over £3 billion of investor money frozen; the collapse of London Capital Finance at the start of the year, which left thousands of investors out of pocket; and the scandal of mistreatment of small businesses by Royal Bank of Scotland’s crisis-era turnaround unit.

Bailey argued the series of scandals were a failure of rules, not of the regulator, and urged for a move towards principles-based rules to escape the kind of box ticking culture that had led to the Woodford suspension. The fund manager had done everything above board but had “sailed close to the wind” when following the rules, Bailey said. The Governor of the Bank of England is also Chairman of the Monetary Policy Committee, with a major role in guiding national economic and monetary policy, so it is a matter he may well have a say on soon.