Financial Penalties

The FCA approach to imposing financial penalties on firms and individuals is based on three objectives:

• Disgorgement – a person should not benefit from any breach;
• Discipline – a firm or individual should be penalised for wrongdoing; and
• Deterrence – the financial penalty should be sufficient to deter the person who committed the breach and others from committing similar breaches.

These objectives are incorporated in a five-step process as follows:

1. STEP 1 – disgorgement – the removal of any financial benefit derived as a direct result of the breach
2. STEP 2 – the seriousness of the breach – the determination of a figure appropriate to the seriousness of the breach;
3. STEP 3 – mitigating and aggravating factors – an adjustment made to the Step 2 figure, which takes any aggravating and mitigating circumstances into account;
4. STEP 4 – adjustment for deterrence – to ensure that the penalty has a deterrent effect, an upwards adjustment is made to the amount arrived at after Steps 2 and 3, where appropriate; and
5. STEP 5 – settlement discount – if applicable, a settlement discount will be applied. This discount reflects the timing of a settlement agreement and does not apply to disgorgement of any financial benefit derived directly from the breach.

The steps apply in all cases, although the details of Steps 1 to 4 will differ for cases against firms (DEPP 6.5A), cases against individuals ( DEPP 6.5B) and market abuse cases against individuals (DEPP 6.5C).

At a minimum, the penalty imposed will strip the individual or firm of any benefits that they received directly from the breach. For firms, the figure will usually be a percentage of their revenue from the relevant product or business area over the period of the breach. For individuals this will be a percentage of annual gross income over the period of the breach. For market abuse cases against individuals, this will either be a percentage of their gross annual income over the period of breach, a multiple of the profit made or a minimum of £100,000.00 for the most serious cases, depending on which is greater.

Where a person claims that the penalty will cause them serious financial hardship, then it may be reduced, however, this would only happen if its payment would result in the individual’s income and capital falling below certain threshold levels.