Both the number and monetary value of FCA fines slowed to a trickle in the first half of the
2016/17 financial year (ended 30 September 2016), with the regulator imposing less than £7 million
in fines—a small fraction of the more than £1 billion imposed as recently as the second half of
2014/15. This lower level of fines might be seen as consistent with earlier suggestions that the
Authority would now take a “softer approach” than it has over the past several years.3 On the
other hand, the first half of 2016/17 may simply reflect a transient lull in fines as the FCA redirects
resources and attention from several large-scale investigations that have recently concluded.
A decline in FCA fine activity was already apparent in the second half of the 2015/16 financial year,
as we described in our last report.4 In that period, the total amount of fines imposed fell to less
than £100 million, from £794.3 million in the first half of 2015/16. Moreover, the number of fines
imposed both on firms and on individuals in 2015/16 was lower than in any of the prior four financial
years (see Table 1 on the next page).
This steep decline continued during the first half of 2016/17, with the FCA imposing only 12 fines
totalling £6.3 million. The number and amount of FCA fines over any semi-annual period has not
been this low since the second half of the 2007/08 financial year.5
2 www.nera.com
Figure 1. Semi-Annual Aggregate FCA Fine Amounts against Both Firms and Individuals
98.7 78.8 120.2
0
H1
2011/12
H2
2011/12
H1
2012/13
H2
2012/13
H1
2013/14
H2
2013/14
H1
2014/15
H2
2014/15
H1
2015/16
H2
2015/16
H1
2016/17
Aggregate Amount (£ millions)
Financial Year
Fines Other than Interbank Rate and FX Interbank Rate Fines FX Fines
Notes and Sources:
Numbers may not sum precisely to totals due to rounding.
223.6 221.1
100.1
183.1
118.6 115.5 73.9
105.0 283.1
59.5
247.5
105.6
226.8
1,114.9
284.4
18.6 6.3
60.2 79.7
347.6
98.7
95.9
197.1
1,189.1
794.3
200
400
600
800
1,000
1,200
1,400
14.0
20.2
Even excluding the arguably extraordinary fines in relation to manipulation of interbank rates (eg
LIBOR6) and foreign exchange (FX) markets over the last four financial years, aggregate fines in the
first half of 2016/17 were exceptionally low compared to those in prior semi-annual periods (see
Figure 1).
Table 1. Annual FCA Fines
2011/12–2015/16, and First Half 2016/17
2011/12 2012/13 2013/14 2014/15 2015/16 H1 2016/172
Number of Fines1
Individuals 40 20 22 24 15 9
Firms 23 26 27 27 17 3
Totals 63 46 49 51 32 12
Aggregate Fines (£ millions)1
Individuals 19.9 5.1 3.9 7.1 16.2 0.7
Firms 58.9 422.2 416.9 1,403.1 874.0 5.5
Totals 78.8 427.3 420.8 1,410.3 890.2 6.3
Notes and Sources:
Numbers may not sum precisely to totals due to rounding.
1 The annual number and aggregate amount of fines shown here may differ from statistics reported by the FCA in its annual reports (for example, the FCA’s reported 2014/15
totals for number of fines and aggregate fine amount were 43 and £1,409.8 million, respectively). This is for three reasons. First, beginning with its 2009/10 Annual Report, the
FCA assigns each fine to a financial year based on the publication date of the press release announcing the fine, whereas NERA uses the date of the final notice. Second, the
FCA does not include in its count of fines those reduced to zero owing to financial hardship, whereas NERA does. Finally, NERA treats fines on sole proprietorships (ie businesses
consisting of a single individual) as having been imposed on individuals, whereas the FCA classifies these as fines on firms.
2 Figures cover the first half of the 2016/17 financial year, from 1 April 2016 to 30 September 2016.
www.nera.com 3
Of the 12 fines imposed in the first half of the 2016/17 financial year, three-quarters (9 of 12) were
against individuals, a higher proportion than in any semi-annual period during the prior five financial
years (though, as discussed below, this is in part due to the low number of fines imposed on firms)
(see Figure 2).
Figure 2. Semi-Annual Number and Percentage of Fines against Individuals
98.7 78.8
Number of Fines
Individuals Firms
23 19
10 10
19 21
10
12
23
19
7
17
5
13
12
9
3
17
10
7
10
12
15 10
27
36
19
27
26
32
15
17
0
40%
20%
60%
80%
100%
0
10
20
30
40
50
75%
59%
33%
53%
37%
Fines against Individuals as Percentage of Total
Percentage of Fines against Individuals
H1
2011/12
H2
2011/12
H1
2012/13
H2
2012/13
H1
2013/14
H2
2013/14
H1
2014/15
H2
2014/15
H1
2015/16
H2
2015/16
H1
2016/17
Financial Year
Notes and Sources:
NERA classifies fines on sole proprietorships as fines on individuals.
NERA includes in its tallies fines that were reduced to zero owing to financial hardship.
46%
43%
37%
53%
58%
70%
14
17
15
9
8
In the sections that follow, we discuss recent trends in enforcement against firms and individuals
separately, considering non-pecuniary sanctions as well as fine activity.
Enforcement against Firms
The era of large FCA fines against firms for manipulation of interbank rates and FX markets now
appears to be in the past. The last such fines imposed by the Authority were in April 2015 and May
2015, relating to manipulation of interbank rates and FX markets, respectively.7
During the first half of 2016/17, the FCA issued fines against just three firms, totalling £5.5 million.
This is the lowest level of total fines against firms in any semi-annual period since the second half of
2007/08, well before the FCA was established on 1 April 2013. On an annualised basis, this level of
fines (£11.0 million per year) is lower than the annual average of aggregate fines during the financial
years 2002/03 to 2007/08—ie the so-called “light touch” era.8 However, as detailed below, fines in
October 2016 alone exceeded the total for the first half of the 2016/17 financial year (ie the six months
ending 30 September 2016).
The three fines imposed on firms in the first half of 2016/17 comprise:
• a £2.6 million fine on Towergate Underwriting Group Limited for alleged mishandling of client
assets. This fine is noteworthy in that Towergate’s chairman John Tiner once headed the FSA.
4 www.nera.com
Figure 3. Aggregate and Median Annual FCA Fine Amounts against Firms
98.7 78.8
2002/03–
2007/081
2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/172
Aggregate Amount (£ millions)
Financial Year
Fines Other than Interbank Rate and FX Interbank Rate Fines FX Fines
Notes and Sources:
Numbers may not sum precisely to totals due to rounding.
NERA classifies fines on sole proprietorships as fines on individuals.
1 Annual average.
2 Figures cover the first half of the 2016/17 financial year, from 1 April 2016 to 30 September 2016. The scaled up amount represents the
annual total that would be obtained if aggregate fines in the second half of the 2016/17 financial year equal fines in the first half.
3 The calculation of the median fine excludes fines reduced to zero because of financial hardship.
422.2 416.9
115.2
297.9
182.6
362.7
307.0
119.0
226.8
105.6
1,114.9
284.4
13.0 26.3 30.9
90.0 58.9 11.0
1,403.1
874.0
0
60
40
20
80
100
120
140
160
180
0
200
400
600
800
1,000
1,200
1,400
1,600
6.0 2.4
14.5
6.0
2.9
Median Fine (£ millions)
Median Fine3
5.5
• a £2.4 million fine assessed against CT Capital Limited for alleged mishandling of customer
complaints related to Payment Protection Insurance (PPI), a subject of frequent FCA and FSA
enforcement.9
• a £0.5 million fine levied on small-cap broker Cenkos Securities Plc for alleged inadequate security
and safeguards with respect to provision of sponsor services.10 The fine was in relation to Cenkos’s
sponsorship of an insurance company formerly known as Quindell, and, in particular, related to
Cenkos’s work in late 2013 and early 2014 advising Quindell on its effort to become listed on the
London Stock Exchange main market. According to the FCA, Cenkos advised the Authority that
Quindell was eligible for a listing without adequate basis. In particular, the FCA concluded that
Cenkos had not taken “reasonable steps sufficient to ensure that the information provided to the
Authority was accurate and complete in all material respects.”11 Quindell itself was the subject
of an FCA investigation in relation to public statements regarding the company’s 2013 and 2014
financial accounts. In August 2015, following an external review of the company’s accounting
policies, Quindell restated its 2013 financial results from a pre-tax profit to a loss and reported a
large pre-tax loss for 2014.12 The FCA dropped its investigation of Quindell in August 2015 in light
of a parallel (ongoing) Serious Fraud Office (SFO) criminal probe into the company’s business and
accounting practices.13
During the first half of 2016/17, the median of the fines imposed on firms—which can be interpreted
as reflecting the “typical” fine—was £2.4 million. Consistent with the historically low aggregate fine
amount, this median fine is less than half of the median fine in each of the financial years 2013/14 to
2015/16 (see Figure 3).
www.nera.com 5
Aviva (2014/15): £17.6 million
Failure to control conflicts of interest in
relation to management of funds
Barclays (2014/15): £26.0 million
Failure to control conflicts of interest in relation
to gold fixing in the London bullion market
Barclays (2015/16): £72.1 million
Inadequate security systems in dealing
with ultra-high-net-worth individuals
Invesco (2014/15): £18.6 million
Failure to comply with investment limits
Barclays (2014/15): £37.7 million
Mishandling client assets
BNY Mellon (2015/16): £126.0 million
Mishandling client assets
State Street (2013/14): £22.9 million
Charging markups on transitions that were not
agreed by the clients or disclosed
Clydesdale Bank (2015/16): £20.7 million
Mishandling of complaints (PPI)
Lloyds (2015/16): £117.4 million
Mishandling of complaints (PPI)
Santander (2013/14): £12.4 million
Unsuitable advice
RBS (2014/15): £14.5 million
Mis-selling of mortgages
Lloyds (2013/14): £28.0 million
Unsuitable advice
Merrill Lynch (2015/16): £13.3 million
Failure to disclose transactions
J.P. Morgan (2013/14): £137.6 million
Failure to control trading and record-keeping
(London Whale)
RBS (2014/15): £42.0 million
Failure to mitigate IT risk
HomeServe (2013/14): £30.6 million
Mis-selling of insurance policies
Figure 4. FCA Fines against Firms in Excess of £10 Million, Excluding Interbank Rate and FX Fines
1 April 2013 to 30 September 2016
Consumer Protection Failures:
Inadequate Security and Safeguards
Mishandling Client Assets
Mistreatment of Customers and Mishandling of Complaints
Unsuitable Investments and Mis-Selling
Compliance Failures:
Failure to Prevent Misconduct
Transaction Reporting, Record-keeping,
and Pricing Failures
Outlook for Fines on Firms
While the recent low level of FCA fines against firms has attracted some media attention,14 this trend
may not persist. Rather, it may, at least in part, reflect a pause as the regulator redirects resources
previously devoted to interbank rate and FX manipulation and the Operation Tabernula insider
dealing investigation.
However, even if the low level of fines observed in the first half of 2016/17 does not persist, it
is unclear exactly how fines on firms will evolve. One potentially relevant observation is that,
even setting aside fines relating to interbank rates and FX markets, the FCA has imposed fines of
substantial size, relating to a variety of conduct issues, with greater frequency than the FSA did
previously.
As Figure 4 depicts, even excluding interbank rate and FX fines, the FCA has imposed 16 fines of
£10 million or more in three and one-half years, a rate of four to five such fines per year. The FSA
imposed half as many such fines (ie half as many fines of £10 million or more, other than those
relating to interbank or FX manipulation) in its more than 11-year history.15
Figure 4 classifies these FCA fines by the type of alleged misconduct (see the Appendix for a description
of our classification scheme). It shows that recent larger fines are not dominated by any one conduct
issue. They include financial penalties relating to firms’ consumer protection failures, such as mishandling
of client assets and mis-selling, as well as firms’ compliance failures, such as those relating to transaction
reporting and failure to prevent misconduct.
This recent fine activity might, therefore, be taken as broadly indicative of the range of conduct
issues attracting the FCA’s attention and the severity of fines that the Authority is willing to impose.
6 www.nera.com
However, that is subject to at least two caveats. First, the FCA’s enforcement philosophy may
change, such that these larger fines are not necessarily indicative of the severity of future fines.
Second, the level of fines imposed will ultimately also depend on which conduct issues arise in future
and the seriousness of those issues.
The first several weeks of the second half of the current financial year (which began on 1 October
2016) provided an indication that the very low levels of fines observed during the first half of the
financial year may have been a transitory phenomenon. On 5 October 2016, the FCA imposed an £8.2
million fine against two units of the insurer Aviva for client money failings. A week later, on 12 October
2016, the FCA fined Sonali Bank (UK) Limited £3.25 million for failures in Anti-Money Laundering
(AML) controls. These two fines, for a total of more than £11 million, already exceed the total imposed
in the first half of the current financial year, ie in the six months ended 30 September 2016.
Non-Pecuniary Measures
While the level of fines against firms was low in the first half of the 2016/17 financial year, the FCA’s
use of non-pecuniary enforcement measures (ie measures other than fines) against firms actually
exceeded the levels observed in recent years (for descriptions of the various enforcement measures
available to the FCA, see the Appendix to our 2015/16 year-end report16). During the first half of
the current financial year, the FCA resolved 29 cases involving variations, cancellations, or refusals
of permission to operate within the UK financial industry. At the current pace, the total number
of non-monetary enforcement sanctions against firms for 2016/17 is on track to exceed the levels
observed in eight of the last nine financial years17 (see Figure 5 on the next page).
Enforcement against Individuals
While the FCA imposed only nine fines on individuals in the first half of the 2016/17 financial year, these
represented 75% of the total number of fines imposed during that period. The last financial year in which
the FCA imposed a greater number of fines against individuals than it imposed on firms was in 2011/12.
Of the nine fines, three were reduced to zero due to financial hardship; the remaining six collectively
totalled £0.7 million, a modest aggregate amount in comparison to recent years (see Figure 6 on
page 8). If fines on individuals were to continue at the same pace in the second half of 2016/17 as in
the first half, the resulting aggregate fine amount (approximately £1.5 million) would be lower than
in any of the prior seven financial years, even if those prior totals are calculated excluding the top 10
largest fines ever issued by the FCA against individuals.18
The largest fine against an individual in the first half of 2016/17 was for £450,000, less than half
of the fine amount that would be required to qualify for inclusion in the top 10. This fine was
imposed in a final notice dated 8 April 2016 and was in relation to approved person regulatory
failures. Timothy Alan Roberts, former chief executive at Catalyst Investment Group, was fined and
issued a prohibition order based on the regulator’s finding that Mr Roberts had “acted without
integrity (in breach of Statement of Principle 1) and failed to exercise due skill, care and diligence
(in breach of Statement of Principle 6)”19 when raising funds for investment in asset-backed
securities issued by Asset Backed Securities SA (ARM).
The FCA found that Catalyst had sold asset-backed securities issued by ARM, a Luxembourg-based
firm run by Mr Roberts, even though ARM had not received a licence to issue the securities. The FCA
further found that Mr Roberts did not reveal this fact to independent financial advisors to whom
Catalyst promoted the ARM securities.
www.nera.com 7
The fine on Mr Roberts followed a victory for the FCA at the Upper Tribunal in August 2015. Both
Mr Roberts and Andrew Peter Wilkins, a former co-director at Catalyst, had gone to the Tribunal to
challenge 2013 FCA decision notices relating to ARM, in which the Authority sought to impose a
£450,000 fine on Mr Roberts and a £100,000 fine on Mr Wilkins. As discussed in a prior edition of
this report,20 the Upper Tribunal upheld the fine on Mr Roberts and upheld the FCA’s findings that he
had acted without integrity and failed to exercise due skill, care, and diligence.
With respect to Mr Wilkins, however, the FCA only partially upheld the FCA’s findings and reduced
his fine to £50,000 (this was imposed in a final notice dated 22 October 2015 and is thus included in
our fine totals for 2015/16).
Other enforcement actions against individuals during this period included a fine of £109,400,
accompanied by a prohibition order, against Elizabeth Anne Parry in relation to forgery of Statements
of Professional Standing and attempts to mislead the FCA. Also, a £59,557 fine and a public censure
were imposed on Gavin Duncan Paul Breeze for insider dealing. The enforcement action against Mr
Breeze was noteworthy amongst insider dealing cases in that, in addition to the monetary fine, the
Figure 5. FCA Enforcement Activity against Firms by Type of Sanction
2007/08–2015/16, and First Half 2016/17
Variation/Cancellation/Refusal of
Authorisation/Approval/Permissions
Financial Penalty
Prohibition
Scale-up
Suspension Public Censure
Notes and Sources:
For financial years 2007/08–2013/14, data are taken directly from the “Enforcement Activity” appendices to FCA annual reports. For 2014/15 and thereafter, data were
compiled by NERA from final notices.
Therefore, for financial years prior to 2014/15, the annual numbers of financial penalties shown here may differ from statistics reported by NERA in Table 1. Moreover, the
numbers presented in Figure 5 for financial years prior to 2014/15 (taken from the FCA annual reports) are on a slightly different basis to the numbers for 2014/15 and after
(compiled by NERA). This is for several reasons. First, beginning with its 2009/10 Annual Report, the FCA assigns each fine to a financial year based on the publication date
of the press release announcing the fine, whereas NERA uses the date of the final notice in Table 1 and in the figures presented in Figure 5 for 2014/15 and later. Moreover,
the FCA does not include in its tallies fines that were reduced to zero owing to financial hardship, whereas Table 1 includes such fines. Finally, NERA classifies fines on sole
proprietorships as fines on individuals, whereas the FCA classifies these as fines on firms. The outcomes represent single enforcement actions against firms. For example,
three enforcement actions within the same case (ie fine, public censure, and prohibition against a firm) are counted as three distinct outcomes.
1 Does not include Threshold Condition outcomes where the FCA only cancels a firm’s Part 4A permission or its registration (“Threshold Conditions are effectively the
minimum standards for being, and remaining, authorised by the FCA. Maintaining these is an ongoing requirement, and the FCA can vary or cancel a firm’s permission if it
believes that that firm is failing, or likely to fail, to meet them.” See Threshold Conditions, Global Insurance Management, 24 June 2013, available at:
http://www.globalim.co.uk/latestnews/insurance-intermediaries/fsa%20news/2013/jun/24/threshold-conditions).
2 Figures cover the first half of the 2016/17 financial year, from 1 April 2016 to 30 September 2016. The scaled up figure represents the annual total
number of outcomes that would be taken if the number of outcomes in the second half of the 2016/17 financial year equals the number in the first half.
0
24
48
72
96
120
16
39
57
2007/08
33
42
6
81
2008/09
19
80
4
104
2009/10
35
39
4
79
2010/11
20
30
8
58
2011/12
28
6
6
40
2012/13
27
33
2013/141
27
40
4
74
2014/15
17
40
60
2015/16
29
64
32
2016/172
Number of Outcomes
Financial Year
3 3
3
2
1
1 1
2
3
8 www.nera.com
Authority required Mr Breeze to pay restitution to counterparties to his trades.
The median fine against individuals in the first half of the current financial year (£60,833, calculated
excluding fines reduced to zero due to economic hardship) was somewhat higher than in 2015/16,
though much lower than the median fine of £209,300 in 2014/15.
Non-Pecuniary Measures
Despite the relatively low number and amount of financial penalties imposed by the FCA on
individuals in the first half of 2016/17, the use of non-pecuniary enforcement sanctions appears to
be in line with the levels observed over the prior four financial years (see Figure 7 on the next page).
Prohibitions remain the most commonly used of these non-monetary deterrence measures; in fact,
eight of the nine financial penalties imposed in the first half of 2016/17 were accompanied by a
prohibition order.
The FCA has continued to pursue enforcement actions against individuals in relation to the
manipulation of interbank benchmarks, complementing the SFO’s ongoing criminal investigations.
In the first six months of the 2016/17 financial year, the Authority publicly censured Paul White, a
former LIBOR rate submitter at the Royal Bank of Scotland, and banned him from performing any
function in relation to any regulated activity within the UK financial services industry. The proposed
fine of £250,000 was reduced to zero due to financial hardship.
Figure 6. Aggregate and Median Annual FCA Fine Amounts against Individuals
98.7 78.8
2002/03–
2007/081
2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/172
Aggregate Amount (£ millions)
Financial Year
Fines Excluding Top 10 Fines Top 10 Fines
Notes and Sources:
Numbers may not sum precisely to totals due to rounding.
NERA classifies fines on sole proprietorships as individual fines.
1 Annual average.
2 Figures cover the first half of the 2016/17 financial year, from 1 April 2016 to 30 September 2016. The scaled up amount represents the annual
total that would be obtained if aggregate fines in the second half of the 2016/17 financial year equal fines in the first half.
3 The calculation of the median fine excludes fines reduced to zero because of financial hardship.
5.1
19.9
3.9
5.9
2.6 4.4
2.0
2.5
15.7
2.8
2.7
1,114.9
14.2
0.4 1.3
2.6
8.7
4.2 1.5
7.1
16.2
0
700
350
1,050
1,400
0
6
12
18
24
60.8
86.5 100.0 72.6 63.0 50.8
43.9
52.5
32.6
Median Fine (£ thousands)
Median Fine3
209.3
0.7
www.nera.com 9
Another ongoing high-profile case involves Andrew Tinney, former Global Chief Operating Officer
of Barclays Wealth and Investment Management. The FCA alleges that during his tenure, Mr Tinney
suppressed an internal report commissioned from a third-party consultancy whose contents appeared
to be highly critical of the corporate culture at Barclays. The report expressed an opinion that Barclays’
US wealth unit had “pursued a course of revenue at all costs” and recommended a senior management
reshuffle.21 The FCA also alleges that Mr Tinney made misleading statements and omissions to
colleagues as to the report’s nature and/or existence. The Authority is seeking to publicly censure Mr
Tinney and ban him from carrying out any senior management or significant influence functions in the
UK financial services industry. The case currently awaits a hearing at the Upper Tribunal.22
The FCA announced a prohibition for Andrew Barry Hart, the director and owner of Wage
Payment and Payday Loans Limited (WPPL), from carrying out activities as an approved person.
The FCA also announced a cancellation of permission for WPPL. In July, the FCA had issued a
decision notice23 relating to the intended actions; at that time, Mr Hart and WPPL planned to
appeal to the Upper Tribunal, but the appeal was subsequently withdrawn. The FCA found that Mr
Hart contributed to and failed to stop unfair business practices that had a direct negative impact
on customers, including causing them financial losses. This enforcement action represents an
exercise by the FCA of its powers to regulate consumer credit, which it took over from the Office
of Fair Trading (OFT) in April 2014.
6
13
35
5
Figure 7. FCA Enforcement Activity against Individuals by Type of Sanction
2007/08–2015/16, and First Half 2016/17
Notes and Sources:
For financial years 2007/08–2013/14, data are taken directly from the “Enforcement Activity” appendices to FCA annual reports. For 2014/15 and thereafter, data were
compiled by NERA from final notices.
Therefore, for financial years prior to 2014/15, the annual numbers of financial penalties shown here may differ from statistics reported by NERA in Table 1. Moreover, the
numbers presented in Figure 7 for financial years prior to 2014/15 (taken from the FCA annual reports) are on a slightly different basis to the numbers for 2014/15 and after
(compiled by NERA). This is for several reasons. First, beginning with its 2009/10 Annual Report, the FCA assigns each fine to a financial year based on the publication date
of the press release announcing the fine, whereas NERA uses the date of the final notice in Table 1 and in the figures presented in Figure 5 for 2014/15 and later. Moreover,
the FCA does not include in its tallies fines that were reduced to zero owing to financial hardship, whereas Table 1 includes such fines. Finally, NERA classifies fines on sole
proprietorships as fines on individuals, whereas the FCA classifies these as fines on firms. The outcomes represent single enforcement actions against individuals. For
example, three enforcement actions within the same case (ie fine, public censure, and prohibition against an individual) are counted as three distinct outcomes.
1 Figures cover the first half of the 2016/17 financial year, from 1 April 2016 to 30 September 2016. The scaled up figure represents the annual total
number of outcomes that would be taken if the number of outcomes in the second half of the 2016/17 financial year equals the number in the first half.
0
40
80
120
160
200
4
38
25
67
2007/08
23
59
51
138
2008/09
27
53
4
122
2009/10
48
69
55
176
2010/11
39
42
47
133
2011/12
22
75
2012/13
19
58
2013/14
24
24
4
76
2014/15
15
64
2015/16
14
72
36
2016/171
Number of Outcomes
Financial Year
11
36 9 26
24
4
4
26
22
9
6
1
2
4
5
5
Variation/Cancellation/Refusal of
Authorisation/Approval/Permissions
Financial Penalty Prohibition
Scale-up
Public Censure
10 www.nera.com
Table 2. FCA Criminal Indictments
2002/03–2015/16, and First Half 2016/17
Indictment Year1
Prior to 2010/11 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 H1 2016/172 Total
Indictment of Individuals
Insider Dealing 12 14 4 8 1 3 3 1 46
Land Banking 0 0 0 0 8 0 0 0 8
Other Indictments3 20 1 0 3 3 1 0 5 33
Total 32 15 4 11 12 4 3 6 87
Notes and Sources:
Data are from FCA press releases, supplemented by a review of news articles. The table includes only named defendants.
1 If the indictment date is not reported in the FCA’s press releases, the arrest date is used.
2 Figures cover the first half of the 2016/17 financial year, from 1 April 2016 to 30 September 2016.
3 Includes cases of mis-selling, stealing, fraud, illegal deposit taking, and failure to cooperate with the FCA.
Trends in FCA Criminal Prosecution
During the first half of the 2016/17 financial year alone, the Authority criminally indicted more
individuals than in either of the previous two financial years. In June 2016, the FCA charged five
individuals with alleged investment fraud in relation to “a purported commercial development in
Madeira in which, in total, 175 investors may have lost approximately £2.75 million.”24 The FCA
also charged a former investment portfolio manager at Blackrock Investment Management (UK)
Ltd., Mark Alexander Lyttleton, with insider dealing. Mr Lyttleton pleaded guilty to two counts
of insider dealing on 2 November 2016 and will be sentenced on 21 December 2016.
If the pace of indictments over the first six months of 2016/17 continues over the remainder of
the financial year, the FCA will match the number of indictments in the 2013/14 financial year,
the maximum during the FCA’s existence (see Table 2).
Indeed, there is some indication that the pace of indictments may accelerate in the second half of
the current financial year. In the first three months of the current financial year, the FCA opened 14
new criminal investigations into insider dealing, bringing the total number of open cases to 54.25
With the large-scale Operation Tabernula investigation largely concluded,26 the FCA may now be in
a position to focus more resources on other investigations, including ones related to insider dealing.
The release of the FCA’s most recent market cleanliness statistics in July 201627 may be a further
indication that the Authority will focus its attention on this area. They showed that share prices
moved abnormally ahead of almost one out of every five UK public takeover announcements in 2015
(the highest level since 2011).
Five verdicts were reached in criminal prosecutions by the FCA against individuals during the first half of
the 2016/17 financial year. Each of these was in connection with Operation Tabernula. Two of the five
individuals were convicted, while the remaining three were acquitted (see Table 3 on the next page).
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Conclusion
FCA fine activity in the first half of the 2016/17 financial year was low as compared to recent levels.
This may be a temporary lull as the FCA redirects its resources from large-scale investigations such as
those into interbank rate and FX manipulation and Operation Tabernula. Based upon fine activity in
the first few weeks of the second half of the 2016/17 financial year, fines against firms may already
be picking up in intensity.
While the FCA has continued to emphasise the importance of holding senior managers at financial
institutions to account, the number and amount of financial penalties imposed by the FCA on
individuals in the first half of 2016/17 remained low. However, this trend may be reversed with
the introduction of the Senior Manager’s Regime (SMR) and the European Union’s Market Abuse
Regulation (MAR). The pending case against Andrew Tinney reflects an intended enforcement action
against a senior executive at a major bank. Moreover, criminal prosecution of individuals is on the
rise, with the FCA indicting more individuals in the first six months of this financial year than in either
of the prior two financial years.
The FCA recently published a document with its proposals as to its future mission (the Mission).28
The Authority is soliciting feedback from market participants as to the best way for the Authority
to apply its statutory objectives in future. In the Mission, the FCA highlights the importance of
protecting vulnerable consumers, making clear that the Authority will intervene in unregulated
activities (ie activities outside of the FCA’s direct remit) if these activities threaten the FCA’s
objectives—for example, if they pose a threat to the UK financial system.29 This suggests some
potential for a widening of the scope of activities that may be subject to FCA enforcement. The
Mission also indicates that the FCA will be reviewing its use of “private warnings”—ie non-public
warnings made to firms that they came close to being subject to a formal (public) action. If the FCA
were to foreclose the option of providing firms with private warnings, this could potentially lead to
increased publicly announced enforcement actions against firms.30
NERA will continue to monitor and analyse these developments as they unfold.
Table 3. FCA Criminal Verdicts
2002/03–2015/16, and First Half 2016/17
Verdict Year1
Prior to 2010/11 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 HI 2016/172 Total
Outcomes
Insider Dealing Convictions 5 5 1 12 1 3 1 2 30
Land Banking Convictions 0 0 0 0 0 0 8 0 8
Other Convictions3 9 0 4 1 2 3 0 0 19
Acquittals 1 3 0 5 4 0 0 3 16
Total 15 8 5 18 7 6 9 5 73
Notes and Sources:
Data are from FCA press releases, supplemented by a review of news articles. The table includes only named defendants.
1 If the verdict date is not reported in the press release, the sentencing date is used instead.
2 Figures cover the first half of the 2016/17 financial year, from 1 April 2016 to 30 September 2016.
3 Includes cases of mis-selling, stealing, fraud, illegal deposit taking, and failure to cooperate with the FCA.
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Appendix: Classification of Fines by Type of Alleged Misconduct
Market Integrity Violations
Our classification scheme makes a basic distinction between cases alleging violations of market
integrity—behaviour that distorts or otherwise negatively affects financial markets—and other types
of cases. We classify four types of conduct as relating to market integrity:
• Insider Dealing: Unlawful trading based on non-public (inside) information and/or improper
dissemination of such information.31
• Market Manipulation: Transactions made, orders placed, or other similar actions intended to
manipulate the price of a financial instrument or otherwise create a false impression about the
market for a financial instrument.32
• Misleading Disclosures: Dissemination of misleading information about an investment or issuer,
or other actions taken to give a false impression about, and thus distort the market for, an
investment.33
• Failures to Disclose: Delay or omissions by a publicly traded company in providing the market
with information that is required to be disclosed, leading to a distortion in the market for the
company’s securities.34
Customer Protection Failures
Fines related to customer protection failures involve the following types of misconduct:
• Unsuitable Investments and Mis-Selling: This category includes cases that allege investment advice
given to, or investments made on behalf of, a client or clients, which are not suitable to client
risk preferences or circumstances (or both). Often these cases involve a failure to obtain “know
your customer” information necessary to assess the suitability of investment recommendations
or decisions.35 This category also includes improper marketing cases including failure to provide
sufficient and non-misleading information in promoting or selling a security,36 and some small
capitalisation stock brokerage, or “boiler room”, cases.37
• Mistreatment of Customers & Mishandling of Complaints: This includes cases where clients were
not catered to in a manner deemed fit by the FCA. Common examples include overcharging of
customer fees, using high-pressure sales tactics,38 poor treatment of customers facing mortgage
arrears, or disadvantaging certain customers in any way.39 Failures to respond appropriately to
client complaints are also included in this category.40
• Mishandling of Client Assets: This includes failure to segregate client assets from firm assets and
other failures to safeguard, or misuse of, money managed on behalf of clients.41
• Inadequate Security and Safeguards: These include control failures relating to financial crime
prevention—such as failing to screen customers against the government’s “sanctions list”, failing
to report or appropriately monitor suspicious behaviour (such as potential bribery), or allowing
third parties inappropriate access to client funds, as well as cases where identity fraud risks
were posed due to the granting of access to client funds or confidential information without the
adequate verification of the identity of the party seeking such access or information.42
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Compliance Failures
Fines related to failures in regulatory compliance involve the following types of misconduct:
• Transaction Reporting, Record-Keeping, and Pricing Failures: These are cases alleging inadequacies
in maintaining accurate records and/or reporting such records in a timely and accurate manner.
They often relate to failures to provide accurate and timely transaction reports or to mis-marking
of securities.43
• Approved Person Regulation Failures: These relate to breaches of the FCA’s Approved Persons
regulations, for example allowing an individual to hold a “significant influence function” (SIF) such
as director or officer, without obtaining the FCA’s approval, or a failure to notify the FCA of a
regulatory investigation in respect of an approved person in the UK.44
• Failure to Prevent Misconduct: These relate to cases in which the FCA sanctions managers (eg
SIF holders) not directly involved in underlying misconduct but in a position to have prevented
misconduct committed by others.45
• Other Compliance Failings by Firms: To date, these cases include fines for lying to the FCA, failing
to adequately respond to FCA requests, operating without required FCA authorisation, and
tampering with documents sent to the FCA.46
Fraud or Other Deliberate Misconduct
These cases have included fraud related to mortgage applications, insurance issuance, and
misleading clients or potential clients regarding status as an approved person.47 This category also
includes theft from clients and misappropriation of client assets.