FCA fines set to dip below record despite Libor and forex penalties

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The Financial Conduct Authority’s income from fines is set to fall short of a record for the first time since 2011, despite announcing two of the three biggest penalties ever imposed on financial firms operating in Britain within the past month.

Last week’s record £284.4m penalty imposed on Barclays for its part in the foreign exchange rate rigging scandal came just weeks after a £226.8m fine on Deutsche Bank, the third-biggest fine to be imposed by the FCA and a record for a penalty related to the Libor rate fixing scandal.

The two combined, at £511m, makes up the lion’s share of the £696.6m total for the year to date – nearly half of the £1.4bn reaped last year.

But the watchdog is thought unlikely to match that performance in the second half.

FCA sources say while the watchdog still has an active disciplinary pipeline which could see a number of substantial fines levied over the coming months, there is no investigation comparable with the multi-jurisdictional probes into foreign exchange and Libor interest rate rigging.

The Libor and forex scandals have between them provided the bulk of the fine revenue that has been pouring into the Treasury’s coffers since the first Libor fine was imposed on Barclays in April 2012.

The two scandals account for eight of the 10 biggest penalties levied by British financial regulators, although they still fall far short of the sort of “mega-fines” favoured by multiple regulators in the US.

Until Barclays’ Libor penalty opened the floodgates, the revenue from fines was retained by the regulator and used to offset running costs and reduce the fees paid by businesses with clean disciplinary records.

But that became increasingly controversial as the size and level of fine revenue boomed and because of the nature and scale of wrongdoing by banks. As a result the Chancellor, George Osborne, changed the rules so that the money was returned to the taxpayer, bar a small amount – about £40m a year – retained by the regulator to cover investigation costs.

The money has since been used to fund a variety of causes ranging from a donation to the fund seeking to raise money for a second Air Ambulance in London to funding 50,000 extra apprenticeships for young people, paid from the Deutsche Bank fine.

Further announcements could come in the Chancellor’s forthcoming emergency Budget, to help mitigate the pain of what is expected to be another round of swingeing cuts to Britain’s welfare bill.

The most recent available figures for the number of “open” disciplinary cases dates back to March 2014 when there were 259 in progress, a slight increase on the previous year. An updated figure is set to be released with the next few months.

In 2011, the last year that a City watchdog did not break a record for the total collected in fines, the now-defunct Financial Services Authority levied £66.1m in total, a slight decline on the £89.1m recorded in 2010.

In 2007, as the global financial crisis was just beginning to grip the country, the former watchdog imposed penalties totalling a pitiful £5.3m. A year later, with the financial system teetering on the brink of collapse and several of the scandals that have since rocked the industry brewing, the total still reached only £22.7m.