King & Wood Mallesons

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The FCA’s ‘new’ penalties regime — how it is being implemented in practice

It has been more than three years since the Financial Conduct Authority (FCA, previously the Financial Services Authority) brought into effect its ‘new’ penalties regime for regulatory misconduct and more than two years since it was used for the very first time. The ‘new’ regime, as anticipated, has in practice produced some eye-watering fines, such as the £137.6m fine for JP Morgan following its ‘London Whale’ trades. While it remains the case that not every regulatory enforcement action will use this regime — as pre-March 2010 conduct is still, in some cases, proceeding through the disciplinary process — we do now have a body of Final Notices under the ‘new’ regime, from which we can glean some principles or precedential value.

By way of reminder, the FCA applies a five-stepped process based on the 3 Ds: disgorgement of profits made or losses avoided (Step 1); discipline taking into account the seriousness of the breach (normally by applying a percentage of 0–20 per cent of a firm’s ‘relevant revenue’, or 0–40 per cent of an individual’s ‘relevant income’) and any aggravating or mitigating factors (Steps 2 and 3); and deterrence to the subject of the decision and others in the market (Step 4) (followed by any early settlement discount at Step 5).

Set out below are the takeaways or themes that can be gleaned from the decisions there have been thus far…

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