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Government urges UK City regulator to consider ending discounts for late settlement of enforcement cases

Out-Law News | 22 Dec 2014 | 4:33 pm | 1 min. read

Discounts on fines issued by the Financial Conduct Authority (FCA) should only, in general, be offered to financial services companies that settle enforcement cases with the regulators at an early stage, the UK government has said.

The Treasury said the move would encourage financial services companies to cooperate with the FCA's investigations (54-page / 543KB PDF) and reach an early settlement with the regulator on an appropriate punishment.

Currently, the "graduated discount scheme" operated by the FCA allows financial services companies to benefit from a 30% discount on any fine they are issued with if they settle those enforcement cases during the first stage. Discounts of 20% and 10% respectively are available for settlements during stages 2 and 3 of the regulator's investigations.

"The government considers that removing the discounts currently available at stages 2 and 3 will assist in demarcating, at an early stage, between those cases that can be settled, and those that must be contested," the Treasury said. "The regulators should consider reviewing the graduated discount scheme and applying a discount only to those cases which settle in stage 1. The regulators may wish to retain the ability to apply a discretionary discount in cases which settle outside stage 1, where they consider it appropriate."

The Treasury's recommendation follows a review it conducted into enforcement decision-making at the FCA and the Prudential Regulation Authority (PRA).

In light of the responses it received from industry stakeholders, the Treasury has called on the regulators to "consider how best to promote early, constructive engagement" between their investigatory teams and the firms they are investigating. It said the regulators should "consider, for example, the provision of specific training to investigators, increased involvement of senior staff – from the regulators, and from firms under investigation – and encouraging greater co-operation from subjects".

The Treasury also recommended that senior officials at the regulators should attend settlement meetings with financial services companies to address concerns raised by some within industry that more junior members of investigatory teams at the regulators were not relaying their representations on the issues at hand in the investigations to the settlement decision makers.

Among its other recommendations, the Treasury called on the FCA and PRA to outline and publish the criteria they refer to for determining whether a case they are investigating should be referred for enforcement action or for an "alternative regulatory response".

"The FCA and PRA should also ensure that their respective referral criteria reflect the various objectives of their enforcement action, including its strategic purpose in publicly reinforcing the regulatory requirements in priority areas," it said.

The Treasury said the regulators should also highlight more examples of cases they have dealt with where a company's "response to a breach of the regulatory requirements has been a factor in deciding not to take enforcement action".