The ratcheting up of City fines comes not a moment too soon.

In some areas of City life, the threat of fines from the Financial Services Authority are seen as a footling expense, just another cost of doing business, no different from paying the quarterly phone bill. The embarrassment factor no longer counts for much, alas. There is not much shame in being on the receiving end of a fine, when just about every large firm has paid at least one — from Aviva to Lloyds and GE to HSBC.

Only the size of the fine has come to matter.

In some areas, this has proved laughably inadequate in producing better behaviour. The most egregious example is in payment protection insurance. The FSA was naive in believing that fines of a few hundred thousand to a few million pounds would jolt banks into better behaviour when they were annually reaping scores if not hundreds of millions of pounds in profit by mis-selling this product.

Similarly, in investment banking, a fine of a couple of million or so was no more than the bonus of a middling managing director. Why on earth in an industry, where money ranks first, second and third in management priority, did the FSA seriously think that such piddling flea bites would make senior management take compliance more seriously?

On insider dealing, it’s questionable, however, whether the threat of larger fines will be so effective. Of much greater deterrent effect would be if the FSA actually caught, prosecuted and jailed some of the big fish.

There is one other proviso. In cases where shareholders have been misled, the case for bigger fines falls down. The biggest FSA fine ever was a £17 million penalty meted out to Shell for misleading its own shareholders. Since no Shell manager was successfully pursued, the consequence was that the shareholders, the victims of the scandal, ended up indirectly paying the fine.

The Americanisation of the FSA continues apace. It is already pushing ahead with plans to offer witnesses immunity from prosecution in order to nail wrongdoers. Now it is wielding SEC-style fines.

There is one other plus. The fines are ringfenced and used to offset the FSA’s industry-wide levies. With these set to soar as the FSA flexes its post-crunch muscles, those who stick to the straight and narrow deserve every little concession going.

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