The Financial Services Authority (FSA) regulates firms in the financial industry such as banks, brokers and insurance companies. It has broad responsibilities to protect consumers and to ensure fair play in the financial markets. To assist in that work, the FSA publishes detailed regulations for firms in the financial services industry governing everything from mortgage sales to money-laundering checks. It also has far-reaching investigatory powers and can launch criminal investigations, as well as publicly censure companies and impose limitless fines.

Although most of the fines imposed on firms by the FSA for wrongdoing have been below £1 million, there have been multi-million pound fines (the highest being £17 million) and the general trend is upwards. Significantly, individuals are not beyond the FSA’s reach as evidenced by hedge fund manager Philippe Jabre’s fine of £750,000 last year for market abuse.

The true cost to firms found to have breached regulatory requirements is the significant reputational damage that can ensue, together with the cost of consumer compensation required in many cases. In the past, fines of £1 million to £2 million have been dwarfed by associated compensation costs of many times that figure.

Firms can reduce the risk of FSA action by paying close attention to their internal systems and controls and also by instilling a “compliance culture” within the business, as is encouraged by the FSA. While an independent tribunal exists for companies who disagree with the FSA’s findings, its public nature and the uncertainty surrounding principles-based enforcement often make firms less confident in challenging the FSA. As a result, many who have experienced the FSA enforcement process feel that the balance of power is tilted too far towards the regulator.

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