We highlight some of the key regulatory decisions from 2012 and trends that are expected to continue into 2013.
Increase in FSA regulatory fines
The total amount of fines levied by the FSA in 2012 was £311,569,256, a marked increase from the total amount of £66,144,839 in the previous year. The increase is perhaps not surprising, however, given the significant fines in relation to LIBOR – the largest fine being for £160 million. The FSA also levied a record fine of £500,000 on a senior executive for management failings. 2013 looks set to be a busy year for the FSA and its successor from April, the FCA, with the trend of large fines likely to continue.
The FSA expects to carry out reviews of several areas in 2013. The "Systematic Anti-Money-Laundering Programme", which was piloted in 2012, will be rolled out in large high street and investment banks. A permanent programme of review will be applied to these banks. A thematic review of how asset managers handle the risks of money laundering and bribery will also be introduced. 22 firms from across the investment management sector will be reviewed and a report published in the third quarter of 2013. The FSA has also suggested that there will be initiatives dealing with investment fraud, and in particular illegal investment scams.
Enforcement action taken against mortgage broker
On 12 December 2012, the FSA published a press release on enforcement action taken against Black and White Group Ltd, a mortgage broker, and three of its former directors for encouraging sales advisers to sell a particular lender's mortgages, without consideration of customer suitability, in return for a £1 million loan facility from the lender. The firm received a censure and would have received a fine of £2.2 million, had it not been liquidated in 2008. The three directors received fines and bans from holding positions in financial services.
Application to prevent publication of FSA decision notices rejected
Shortly after the FSA issued decision notices in respect of Arch Financial, in relation to the Arch cru funds, a number of parties applied for an order prohibiting the publication of those notices, on the basis that if they were published they would cause serious harm, including reputational damage, to the applicants. The application was rejected by the Upper Tribunal. It held that the principle of open justice and the statutory provisions in Section 391 of the Financial Services and Markets Act 2000 created a presumption in favour of publication of a decision notice, and the presumption had not been rebutted. The evidence it had been provided with, in relation to the effect of publication of the notices on the reputation or privacy of the applicants, did not meet the necessary requirement. Further, there was already a significant amount of information in the public domain relation to the Arch cru funds.
Increase of fine by Tribunal upheld
In September 2012, the Upper Tribunal upheld the FSA's decision to ban and fine a Swiss fund manager and two traders for market abuse. In doing so, it increased the level of the fine which had been ordered by the FSA against one of the traders, Mr Sejean, from £550,000 to £650,000, stating that it was "as serious a case of market abuse of its kind as one might conceive". Mr Sejean made a serious financial hardship application in the hope that there would be a reduction in the amount he was required to pay. On 21 December 2012 the Tribunal announced that the fine would be upheld, given that Mr Sejean had not provided any clear evidence of excessive financial hardship.
FSA censures stockbroking firm for misselling
The FSA found that Greenchurch Investments had pressured its clients to buy shares in small companies and knowingly gave misleading advice to them. It also failed to review any of its financial promotions to buy shares and other client communications, and failed to give generic risk warnings to clients. The former compliance officer and chief executive officer of Greenchurch received bans and the chief executive officer also received a fine of £450,000.
The FSA indicated that it would not tolerate firms coercing clients into buying unsuitable financial products or senior management that allow such practices to exist within their firms.