LONDON: Fines dished out to misbehaving banks in Britain are set to top £900mil (RM5.78bil) this year, bringing a bumper windfall for some charities and further evidence of a shift nearer the US model of severe penalties to deter wrongdoing.
Britain’s financial watchdog has fined banks, insurers, asset managers and individuals £899mil (RM5.78bil) so far and though the final tally will almost certainly be below last year’s record £1.5bil (RM9.64bil), it will still be the second highest ever and more than 13 times the total in 2011.
The dip from 2014 can be attributed to last year’s £1.1bil (RM7.07bil) settlement with five banks for rigging foreign exchange rates and lawyers said there remains a clear upward trend as Britain moves nearer to United States-style punitive action.
“Those blockbuster cases were always going to result in huge penalties. But leaving those aside, we’re starting to see much bigger penalties in other areas,” said Marcus Bonnell, counsel in the regulatory team at law firm RPC.
Barclays was fined £284mil (RM1.83bil) in May for failing to stop its traders manipulating foreign exchange markets, the biggest fine imposed by the UK regulator.
Lloyds Banking Group was slapped with the biggest retail banking fine of £117mil (RM752mil) in June for mistreating customers sold payment protection insurance. And Barclays was last month fined £72mil (RM463mil) for not making proper checks on wealthy clients, the biggest fine for such failings.
There have also been hefty fines for failures relating to client assets, conflicts of interest or transaction reporting, including a £126mil (RM810mil) penalty for Bank of New York Mellon and an £18mil (RM116mil) hit for Aviva Investors.
Accountancy firm EY estimates that the average UK fine imposed on firms has almost trebled in the past two years.
John Smart, head of EY’s UK fraud investigation and dispute services team, said that recent scandals and more political pressure mean that regulators are now more willing to pursue cases that may once have been considered too difficult.
There has also been a significant shift in the treatment of individuals, with 20 fined so far this year, compared with 13 last year.
Numbers could continue to rise, lawyers said, noting new rules that make senior management more accountable for any misconduct, while scores of enforcement staff will no longer be concentrating on the FX and rate-rigging investigations that have tied them up for several years.
“With the freeing up of resources and the introduction of the senior managers regime you could see an increase in the number of cases against individuals,” RPC’s Bonnell said.
The biggest UK fine on an individual this year was a £2.7mil (RM17.4mil) penalty for Alberto Micalizzi, a former hedge fund CEO who tried to conceal losses from investors.
UK courts are also taking a tougher stance, illustrated by the 14-year sentence given to Tom Hayes for rigging benchmark interest rates. That matched the time being served in the United States by former Enron CEO Jeff Skilling for being party to one of the biggest ever corporate frauds.
The British government, meanwhile, has gained a chunky windfall thanks to a 2012 law change that diverted almost all fine income to the finance ministry rather than the financial regulator and is using some of the money to support good causes.
The watchdog previously used fine proceeds to cover regulation costs, but it was deemed politically unacceptable if big misconduct fines continued to cover costs that were meant to be shared by companies within the sector.
The government has received £2.9bil (RM18.6bil) from financial industry penalties since the law change and the regulator keeps about £40mil (RM257mil) a year to cover enforcement costs.
The finance ministry has said all Libor-related fines would go to support military charities and other good causes. It said on Tuesday that £547mil (RM3.5bil) had been allocated so far.
Recipients include a D-Day Museum in Portsmouth and injured soldiers and veterans aiming to compete at next year’s Invictus Games.
The ministry said that £1.1bil of FX-related fines is being used to fund medical and community healthcare facilities and £227mil is to support apprenticeships. - Reuters
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