Lord Sharkey withdraws proposed law amendment set to change FCA financial penalties policy

Maria Nikolova

“Amendment 13” sought to deprive financial companies of discounts to FCA fines until they complete internal disciplinary actions agreed with the regulator.

In March this year, FinanceFeeds reported about findings by the New City Agenda think-tank, showing that UK banks and financial services firms benefited from a total discount of £1.2 billion on financial penalties imposed by the Financial Conduct Authority (FCA) between 2013 and 2017. The heavy discounts were amid the reasons for a call for changes to UK laws.

Under Amendment 13 to the Criminal Finances Bill, as proposed by Lord Sharkey,

“Where a financial penalty is awarded against a firm by the Financial Conduct Authority arising out of a Financial Conduct Authority investigation, the Financial Conduct Authority must withhold a proportion, to be determined at its sole discretion, of any discount to the penalty until it is satisfied that the firm which is a party to the settlement has completed any internal disciplinary actions agreed in the settlement.”

Putting it bluntly, financial companies would not be able to receive the full discount on a fine before and if they complete internal disciplinary actions.

During a heated debate over the proposed amendment earlier this week at the UK Parliament, Lord Sharkey and Lord Mendelsohn argued in favor of the amendment, saying that such an approach would foster disciplinary culture with financial companies.

Baroness Williams of Trafford

Baroness Williams of Trafford, Minister of State at the Home Office, and a Conservative member of the House of Lords, argued against the proposed amendment.

She started by emphasizing that if the FCA thinks that a disciplinary action should be taken against individuals, it can and does take action itself, as opposed to leaving it to the companies to do so.

She said that this approach is exhibited in a number of high-profile cases, including those involving LIBOR manipulation. The FCA settled eight cases with firms totalling £758 million and is also conducting a number of separate enforcement actions against individuals. There have been seven completed actions against individuals in cases that involved settlements with firms in relation to LIBOR or Euribor.

More generally, the FCA issued fines against 64 individuals between April 1, 2013 and March 24, 2017 totalling £15.5 million, Baroness Williams said.

With regards to internal disciplinary action, she added, the FCA can increase the penalty if a firm has not taken appropriate action.

An important disadvantage of the amendment is the potential weakening of the incentives for firms to settle early with the FCA, given that the settlement would not be final, subject to the full discount being granted. As a result, firms might instead opt to engage the FCA in costly and protracted action, Baroness Williams argued.

The need for changes to UK employment laws was also mentioned amid the consequences had the amendment been adopted.

Lord Sharkey withdrew the proposed amendment in light of Baroness Williams’ arguments.

According to the New City Agenda think-tank, the FCA levied a total of 82 financial penalties between 2013 and 2017. Excluding the discounts, the fines would have been £4.2 billion. The top five discounts applied to individual fines were all to penalties for FX manipulation.

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