The FSA has trebled the value of fines it has collected from financial services businesses in just one year (to March 31) from £33.1m to £96.7m, according to law firm Reynolds Porter Chamberlain LLP.

RPC says there were 15 £1m+ fines last year worth £86.9m, up 216% from £27.5m the year before when there were eight.

Jonathan Davies, partner in RPC’s financial services team, comments: “The FSA has now begun the internal reorganisation that will result in its replacement and these fines show that it is making every effort to go out with a bang.”

“This is quite an extraordinary cranking up of the FSA’s enforcement activity. We are now beginning to see fines for conduct that occurred at the start of the credit crunch. There has been a steady increase in the number and value of fines imposed since September 2008, but this is by far the biggest jump.”

The FSA is being split into two bodies, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). All but one of this year’s fine cases would, under the new split, have come under the jurisdiction of the FCA.

Says Davies: “A significant concern we hear from clients is that the two new regulators will compete with each other to set the highest fines, putting substantial upward pressure on the amount of fines the City gets hit with each year.”

According to RPC the average fine handed down by the FSA last year was up 49% on the year before, from £739,284 to £1,099,159

“The fines cover a wide variety of offences including market abuse, failure to protect client money and assets and failings related to Unregulated Collective Investments Schemes,” he explains.

RPC says that fines paid by firms are just one small element of the total costs to the financial services sector of enforcement activity.

Davies estimates that although roughly only half of the enforcement cases brought by the FSA result in a fine all investigations result in firms incurring substantial professional costs. New FSA fines policy implemented last year could see the amount of fines treble again in future years. The policy only applied to conduct taking place after the change so all of this year’s fines were handed out under the old system.

“What will really scare financial services firms is that the FSA has clocked up record fines totalling nearly a hundred million pounds and that could easily treble next year as more fines punish conduct taking place after the rule change,” Davies explains.

The FSA has amassed such high fines in the last year that in total firms will pay 2% less to fund regulation than they did last year, despite a 10% increase in the funding requirement from £454.7m last year to £500.4m for 2011/12.

“Reduced fees are only superficially attractive for financial services firms but as these result from higher fines that are sparking massive growth in compliance costs across the City they are a pyrrhic victory,” he concludes. “The reality for most regulated firms is that they are spending much more on ramping up their compliance culture than they are saving in lower fees to pay for the City watchdog.”

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