ENF 13
Discipline: Financial penalties
ENF 13.1
Application and purpose
- 01/12/2004
Application
ENF 13.1.1
See Notes
This chapter applies to any person on whom a financial penalty may be imposed. The Act empowers the FSA to impose a financial penalty in the following circumstances:
- (1) on a firm, where the FSA considers that the firm has contravened a requirement imposed on it by or under section 206 of the Act (Financial penalties);
- (2) on an approved person, where the FSA considers that he is guilty of misconduct; this is defined in the Act as failure to comply with a Statement of Principle issued by the FSA under section 64 (Conduct: statements and codes), or being knowingly concerned in a contravention by the relevant firm of a requirement imposed on that firm by or under section 66 of the Act (Disciplinary powers);
- (3) on any person, where the FSA is satisfied that the person is or has engaged in market abuse or, by taking or refraining from taking any action, has required or encouraged another person to engage in market abuse; the power to impose penalties for market abuse under section 123 of the Act is considered separately in ENF 14;
- (4) on an issuer of listed securities or an applicant for listing, where there has been a contravention of the listing rules (or on a director of an issuer or applicant who at the material time was knowingly concerned in the contravention) (section 91 of the Act (Penalties for breach of listing rules)). The FSA's powers in this regardrelating to the UKLA are dealt with separately in the listing rules and related guidance.
- 01/12/2004
Purpose
ENF 13.1.2
See Notes
Financial penalties are one of a variety
of regulatory tools the FSA may
employ to help it to achieve its regulatory
objectives. The principal purpose of financial penalties is
to promote high standards of regulatory conduct by deterring firms and approved persons who have
breached regulatory requirements from committing further contraventions, helping
to deter other firms and approved persons from committing
contraventions, and demonstrating generally to firms and approved persons the benefits of compliant
behaviour.
- 01/12/2004
ENF 13.1.3
See Notes
To
help the FSA to
achieve this purpose (as set out in ENF
13.1.2 G), GEN 6 contains rules prohibiting a firm or member from entering into, arranging, claiming
on or making a payment under a contract
of insurance that is intended to have, or has, the effect of
indemnifying any person against
a financial penalty.
- 01/01/2004
ENF 13.2
Introduction
- 01/12/2004
ENF 13.2.1
See Notes
Sections 69 and 210 of the Act require the FSA to issue statements
of policy about the imposition of financial penalties on firms and approved persons. The material in this chapter
constitutes the FSA's statements
of policy and guidance under
those provisions. The FSA may
at any time alter or replace these statements of policy after consultation.
- 01/12/2004
ENF 13.2.2
See Notes
- 01/12/2004
ENF 13.3
Factors relevant to determining the appropriate level of financial penalty
- 01/12/2004
ENF 13.3.1
See Notes
(1) The FSA will
consider all the relevant circumstances of a case when it determines the level
of financial penalty (if any) that is appropriate and in proportion to the
contravention in question.
(2) With the exception of contraventions
involving the submission of returns no more than 28 business days late (see ENF 13.5), the FSA does
not propose to adopt a tariff of penalties for different kinds of contravention.
This is because there will be very few other cases in which all the circumstances
of the case are essentially the same, and the FSA considers that, in general, the use of
a tariff for particular kinds of contravention would inhibit the flexible
and proportionate policy which it intends to adopt in this area.
- 01/12/2004
ENF 13.3.2
See Notes
(1) Section 69 of the Act (Statement of policy) requires that the FSA's policy in determining
the amount of a penalty in relation to approved
persons must include having regard to:
(a) the seriousness of the misconduct in
question in relation to the nature of the principle or requirement concerned;
(b) the extent to which that misconduct was
deliberate or reckless;
(c) whether the person on whom the penalty
is to be imposed is an individual.
- 01/12/2004
ENF 13.3.3
See Notes
The factors which may be relevant when
the FSA determines
the amount of a financial penalty for a firm or approved person include
the following.
(1) The seriousness of the misconduct or
contravention.In
relation to the statutory requirement to have regard to the seriousness of
the misconduct or contravention, the FSA recognises
the need for a financial penalty to be proportionate to the nature and seriousness
of the misconduct or contravention in question. The following may be relevant:
(a) in the case of an approved person, the FSA must have regard to the seriousness of
the misconduct in relation to the nature of the Statement of Principle or requirement concerned.
Similarly, in the case of a firm, the FSA must have regard to
the seriousness of the contravention in relation to the nature of the requirement
contravened.
(b) the duration and frequency of the misconduct
or contravention (including, in relation to a firm, when the contravention was identified
by persons exercising significant influence functions at
the firm);
(c) whether the misconduct or contravention
revealed serious or systemic weaknesses of the management systems or internal controls relating
to all or part of a firm's business;
(d) the impact of the misconduct or contravention
on the orderliness of financial markets, including whether public confidence
in those markets has been damaged;
(e) the loss or risk of loss caused to consumers or other market
users. If a contravention has caused loss to another firm, that firm may be able to take its own action against
the firm which
has committed the contravention; however, the FSA generally expects firms to comply with regulatory requirements,
regardless of the nature of the counterparty; for example, persistent departures
from MAR 3 (Inter-professional conduct) may have implications
for the FSA's assessment
of a firm's continued
fitness and propriety.
(2) The extent to which the contravention
or misconduct was deliberate or reckless. In determining whether a contravention
or misconduct was deliberate, the FSA may
have regard to whether the firm's or approved person'sbehaviour was intentional,
in that they intended or foresaw the consequences of their actions. The matters
to which the FSA may
have regard in determining whether a contravention was reckless include, but
are not limited to, the following:
(c) whether the firm or approved
person has given no apparent consideration to the consequences
of the behaviour that
constitutes the contravention.
If the FSA decides that behaviour was deliberate
or reckless, it may be more likely to impose a higher penalty on a firm or approved person than would otherwise be the
case. (3) Whether the person on whom the penalty is to be imposed
is an individual, and the size, financial resources and other circumstances
of the firm or
individual. This
will include having regard to whether the person is an individual, and to the size,
financial resources and other circumstances of the firm or approved
person. The FSA may
take into account whether there is verifiable evidence of serious financial
hardship or financial difficulties if the firm or approved
person were to pay the level of penalty associated with the
particular contravention or misconduct. The FSA regards these factors as matters to be
taken into account in determining the level of a penalty, but not to the extent
that there is a direct correlation between those factors and the level of
penalty. The size and financial resources of a firm or approved
person may be a relevant consideration, because the purpose
of a penalty is not to render a firm or approved person insolvent
or to threaten its solvency. Where this would be a material consideration,
the FSA will
consider, having regard to all other factors, whether a lower penalty would
be appropriate; this is most likely to be relevant to smaller firms or groups of firms or approved persons with lower
financial resources; but if a firm or
individual reduces its solvency with the purpose of reducing its ability to
pay a financial penalty, for example by transferring assets to third parties,
the FSA will
take account of those assets when determining the amount of a penalty. The
size of the firm may
also be a relevant consideration for the following reasons:
(a) the degree of seriousness of a contravention
may be linked to the size of the firm.
For example, a systemic failure in a large firm could damage or threaten to damage a
much larger number of consumers than
would be the case with a small firm:
contraventions in firms with
a high volume of business over a protracted period may therefore be more serious
than contraventions over similar periods in firms with a smaller volume of business;
and
(b) the size of a firm and its resources may also be relevant
in relation to mitigation, in particular what steps the firm took after the contravention had been
identified; the FSA will
take into account what it is reasonable to expect from the firm in relation to its size and resources,
and factors such as what proportion of a firm's resources
were used to resolve a problem.
(4) The amount of profits accrued or loss
avoided. The FSA may have regard to
the amount of profits accrued or loss avoided as a result of the contravention
or misconduct, for example:
(a) the FSA will
propose a penalty which is consistent with the principle that a firm or approved person should not benefit from the
contravention or misconduct; and
(b) the penalty should also act as an incentive
to the firm or approved person (and others)
to comply with regulatory standards.
(5) Conduct following the contravention. The FSA may take into account
the conduct of the firm or approved person in bringing
(or failing to bring) quickly, effectively and completely the contravention
or misconduct to the FSA's attention
and:
(a) the degree of cooperation the firm or approved person showed during the investigation
of the contravention or misconduct (where a firm or approved
person has fully cooperated with the FSA's investigation, this will be a factor
tending to reduce the level of financial penalty);
(b) any remedial steps taken since the contravention
or misconduct was identified, including identifying whether consumers suffered loss, compensating them,
taking disciplinary action against staff involved (if appropriate), and taking
steps to ensure that similar problems cannot arise in the future.
(6) Disciplinary record and compliance history. The previous
disciplinary record and general compliance history of the firm or approved
person may be taken into account. This will include whether
the FSA (or
any previous regulator)
has taken any previous formal disciplinary action, resulting in adverse findings,
against the firm or approved person, or whether
the FSA has
previously required the firm to
take remedial action by means of a variation of Part IV permission (see ENF 3), or has previously requested the firm to take remedial action, and the extent
to which that action has been taken. For example, the disciplinary record
of a firm or approved person could lead
to the FSA increasing
the penalty, where the firm or approved person has committed
similar contraventions or misconduct in the past. In assessing the relevance
of a firm's or approved person's disciplinary
record and compliance history, the age of a particular matter will be taken
into account, although a long-standing matter may still be relevant. However,
in undertaking this assessment, private warnings will not be taken into account.
(7) Previous action taken by the FSA.The action that
the FSA has
taken previously in relation to similar behaviour by
other firms or approved persons may be
taken into account. The FSA will
seek to ensure consistency when it determines the appropriate level of penalty.
If it has taken disciplinary action previously in relation to a similar contravention
or misconduct, this will clearly be a relevant factor. However, as stated
at ENF
13.3.1 G, with the exception of
the specific circumstances described at ENF 13.5,
the FSA does
not intend to adopt a tariff system, and there may be other relevant factors
which could increase or decrease the seriousness of the contravention or misconduct.
(8) Action taken by other regulatory authorities. This could include
for example:
(a) action taken or to be taken against a firm or approved person by other regulatory authorities
which may be relevant where it relates to the contravention or misconduct
in question;
(b) action taken by any previous regulator regarding the general
level of penalties.
- 01/12/2004
ENF 13.3.4
See Notes
The list of criteria in ENF
13.3.3 G above is not exhaustive, and all the relevant circumstances of
the case will be taken into consideration.
- 01/12/2004
ENF 13.3.5
See Notes
- 01/12/2004
ENF 13.3.6
See Notes
A firm (or approved person) may ask
the FSA to
permit the firm (or approved person) to pay
a financial penalty by instalments. However, the FSA will consider agreeing to payment of
a financial penalty by instalments only where there is verifiable evidence
of serious financial hardship or financial difficulties if the firm or approved person were required to pay the full
payment in a single instalment. This reflects the fact that the purpose of
a penalty is not to render a firm or approved person insolvent
or to threaten solvency. The FSA will
determine the appropriate level and number of instalments having regard to
the overall circumstances of the case. However, the period within which the
full payment of the penalty must be made will not generally exceed one year
from the date of the final
notice.
- 01/02/2003
ENF 13.4
Decision making procedure and publication
- 01/12/2004
ENF 13.4.1
See Notes
The Act requires
the FSA to
issue a warning notice, decision notice and final notice before imposing
a financial penalty. More information on the procedure the FSA will follow in these circumstances is
contained in DEC.
- 01/12/2004
ENF 13.4.2
See Notes
The FSA will
consider the circumstances of each case, but ordinarily will publicise the
financial penalty by issuing a press release, giving details of the behaviour and the penalty
imposed. However, the Act provides
(section 391(6) (Consultation)) that the FSA may not publish information in
these circumstances where it would be unfair to the person on whom the financial penalty is imposed,
or prejudicial to the interests of consumers.
- 01/12/2004
ENF 13.5
Financial penalties for late submission of reports
- 01/12/2004
ENF 13.5.1
See Notes
This section sets out the FSA's policy and procedures in relation
to financial penalties for late submission of reports. It applies to reporting
by firms required
under all rules (not
including the
listing rules
) which require firms to report to the FSA on a periodic basis. It also applies
to periodic reporting by firms required
by the provisions specified in (6) and (7). The following is a list of the
main periodic reporting rules (the
list may not be comprehensive) and those other provisions:
(1) the rules set
out in
SUP
10.9.8 R (Significant management functions) and
SUP 16 (Reporting requirements);
(2)
IPRU(INS) 9.37(4), IPRU(INS) 9.38R, IPRU(INS) 9.6(1) R, IPRU(INS) 9.6 (6) (Financial
reporting) and IPRU(INS) 10.2
(Information to be provided to the FSA);
(3)
IPRU(FSOC) 3.1(7)
R (Management and control), IPRU(FSOC) 5.1(2)R, IPRU(FSOC) 5.2(2) R, IPRU(FSOC) 5.2(3)R (Prudential
reporting) and IPRU(FSOC) 6.3(1)
(Statistical information relating to EEA branches and services operations);
(4)
DISP 1.5.4 R to DISP
1.5.7 R(Reporting complaints to the FSA) and DISP
5.5.1 R (Information requirement);
(5)
LLD
3.3.1 R
to
LLD
3.3.2 R
(The Central Fund),
and
LLD
4.3.1 R
to
LLD
4.3.2 R
(Capacity transfer
market) and the rules set
out in
LLD
15.2.1 R
and LLD
15.10.2 R (Reporting by the Society)
;
(6)
the
reporting requirements in the pensions review provisions and FSAVC review provisions;
that is, the provisions of the deemed scheme under the Financial Services
and Markets Act 2000 (Transitional Provisions) (Review of Pensions Business)
Order 2001 (SI 2001/2512);
(8)
CRED
14.10.10 R (Audited accounts of credit unions) andCRED
17.6.3 R to CRED
17.6.7 R (Complaint
handling procedures for credit unions).
References in ENF 13.5 to 'reports' include all
the various types of reports and other documents, including annual controllers
reports, annual close links reports, compliance reports, financial reports,
persistency reports, accounts and balance sheets, and actuary and auditor
reports that must be submitted to the FSA in accordance with the rules and other provisions
specified in (1) to (8).- 01/09/2003
ENF 13.5.2
See Notes
The FSA attaches
considerable importance to the timely submission by firms of the reports referred to in ENF
13.5.1 G. This is because the
information that they contain is essential to the FSA's assessment of whether a firm is complying with
the requirements and standards of the regulatory
system and to the FSA's understanding
of that firm's business.
- 01/12/2004
ENF 13.5.3
See Notes
(1) In general, the FSA's approach to disciplinary action arising
from the late submission of a report will depend upon the length of time after
the due date that the report in question is submitted. Where the period of
delay is no more than 28 business
days, the FSA considers
that in the majority of cases it will be appropriate to limit the sanction
imposed on the firm concerned
to a financial penalty fixed by reference to the indicative scale of penalties
at ENF
13 Annex 1 G.
(2) There may, however, be exceptional circumstances
in which the FSA considers
that it is appropriate not to seek a penalty, or to impose a lower penalty
than the one indicated by the scale. This may be appropriate if the firm is an individual.
If the person concerned
is an individual, it is open to him to make representations to the FSA as to why he should
not be the subject of a financial penalty, or why a lower penalty should be
imposed. If he does so, the matters to which the FSA will have regard will
include the matters set out in ENF 13.3.3 G (3).It should
be noted that an administrative difficulty such as pressure of work does not,
in itself, constitute an exceptional circumstance for this purpose.
(3) Equally, the FSA may impose a higher penalty than the
one indicated by the scale at ENF
13 Annex 1 G having
regard to the seriousness of the contravention and the extent to which the
contravention was deliberate or reckless. This may include, for example, a
case where a firm repeatedly
fails to submit its reports on time or where there is information that suggests
that such a delay was deliberate.
(4) The FSA will
also have regard to the submission frequency of the late report when assessing
the seriousness of the contravention. For example, a short delay in submitting
a weekly or monthly report can have serious implications for the supervision
of the firm inquestion.
Such a delay may therefore be subject to a higher penalty than the one suggested
by the indicative scale.
- 11/04/2002
ENF 13.5.4
See Notes
Reference to an indicative scale of penalties
for breaches of this nature represents an exception to the FSA's general policy described in ENF
13.3.1 G. The FSA considers that it is appropriate to treat
this type of breach differently from other regulatory breaches on the basis
that the nature of the facts establishing the breach is likely to be similar
in each case and that the scale will ensure consistency in the treatment of
the firms in
question.
- 01/12/2004
ENF 13.5.5
See Notes
(1) Where a report is submitted more than
28 business days after
the due date, and there are no exceptional circumstances justifying the failure
to submit on time, the financial penalty imposed is likely to exceed the amount
indicated by the scale at ENF
13 Annex 1 G for
21 to 28 business days delay.
The FSA will
determine the precise level of the financial penalty to be imposed in accordance
with the approach discussed in ENF
13.3.3 G.
(2) In addition, in appropriate cases, the FSA may bring disciplinary
action against the approved
person or persons within
the firm's management
who are ultimately responsible for ensuring that the firm's reports are completed and returned
to the FSA (see ENF 11.5 (Action against approved persons)).
- 01/12/2004
ENF 13.5.5A
See Notes
In
applying the guidance in ENF 13.5, the FSA may treat a report which is materially
incomplete or inaccurate as not received until it has been submitted in a
form which is materially complete and accurate. For the purposes of the guidance, the FSA may also treat a report
as not received where the method by which it is submitted to the FSA does not comply with
the prescribed method of submission.
- 11/04/2002
ENF 13.5.5B
See Notes
In most late reporting cases, it will
not be necessary for the FSA to
appoint an investigator under its powers discussed in ENF
2since the fact of the breach will be clear. It follows that the FSA will not usually send
the firm concerned
a preliminary findings letter (see ENF
2.5.12 G))
for late-reporting disciplinary action.
- 01/12/2004
ENF 13.5.5C
See Notes
A failure by a firm to submit a report by the due date may
indicate wider problems within the firm,
for which more serious disciplinary sanctions or other enforcement action
(see ENF 11.2.3 G) or both, may be appropriate.
- 01/12/2004
ENF 13.5.6
See Notes
The FSA will
use the decision making procedure set out in DEC
4.5.2 G to DEC
4.5.6 G to decide whether to impose a financial penalty
for the late submission of a report. It will use this procedure whether the
period of delay is more than or less than 28 business days, including if no submission
has been made at all.
- 11/04/2002
ENF 13.5.7
See Notes
(1) Once a final notice has been issued relating to
a financial penalty and any other relevant sanction for a late report, the FSA will consider whether
it is unfair to the firm or
prejudicial to the interests of consumers to
publish information relating to the decision. The FSA anticipates that in most cases where
reports have been submitted late, no such unfairness or prejudice will exist.
If so, it will enter details of the decision in the FSA Register.
(2) The FSA may
also publicise the sanctions on a wider basis where the contravention is considered
to be particularly serious. Examples of situations that may result in wider
publicity include where the period of delay exceeds 28 business days and/or where the firm in question has previously
failed to submit its reports on time to the FSA or to any previous regulator.
- 01/12/2004
ENF 13.5.8
See Notes
ENF
13.3.6 G contains guidance concerning requests
for permission to pay financial penalties by instalments. That guidance also applies
to penalties for late submission of reports.
- 01/02/2003
ENF 13.6
Breaches of prudential requirements and financial penalties
- 01/12/2004
ENF 13.6.1
See Notes
Where a firm has breached prudential requirements
(for example, rules relating
to the adequacy of financial resources), the FSA will consider all the relevant circumstances
of a case (including the factors listed in ENF
13.3.3 G)
in determining whether to impose a financial penalty.
- 01/12/2004
ENF 13.6.2
See Notes
In considering whether to impose a financial
penalty on a mutual (such as a building
society), the FSA will
take into account the impact that a penalty may have on a firm's customers,
as the FSA would
with any firm.
However, the FSA may
decide to impose a financial penalty on a mutual, taking into account all
the circumstances of the case (including the factors listed in ENF
13.3.3 G), even though this may have a direct impact
on that mutual's customers.
This reflects the fact that a significant proportion of a mutual's customers are shareholder-members;
to that extent, their position involves an assumption of risk that is not
assumed by customers of
a firm incorporated
as a company.
Whether a firm is
a mutual will not, by itself, increase or decrease the level of a financial
penalty.
- 01/12/2004
ENF 13.6.3
See Notes
PRU 7.6.33 R
prohibits a long-term insurer (including a firm qualifying for authorisation
under Schedule 3 or 4 to the Act),
which is not a mutual, from paying a financial penalty from a long-term insurance
fund.
- 31/12/2004
ENF 13 Annex 1
Indicative scale of financial penalties for reports no more than 28 business days late (see ENF 13.5)
- 01/12/2004
ENF 13 Ann 1
See Notes
| Number of business days late | Annual fees payable by firm | |||||||
| Note | ||||||||
| £1 to £150 | £151 to £500 | £501 to £1,000 | £1,001 to less than £10,000 | £10,000 to less than £20,000 | £20,000 to less than £50,000 | £50,000 to less than £100,000 | £100,000 or greater | |
| 22-28 | 40 | 100 | 200 | 400 | 800 | 2000 | 4000 | 6000 |
| 15-21 | 30 | 75 | 150 | 300 | 600 | 1500 | 3000 | 4500 |
| 8-14 | 20 | 50 | 100 | 200 | 400 | 1000 | 2000 | 3000 |
| 1-7 | 10 | 25 | 50 | 100 | 200 | 500 | 1000 | 1500 |
| Note | ||||||||
| 1. For this purpose, the annual fee payable by the firm is the annual fee for the most recent financial year for which the FSA has fully invoiced the firm before the date on which the relevant report first became late. | ||||||||
| 2. Where the firm first becomes authorised after 1 December 2001, and at the time the report first becomes late the firm has not previously been fully invoiced by the FSA for an annual fee, the annual fee of the firm will be treated as less than £10,000 | ||||||||
- 01/10/2002