DEPP 6.5 Determining the appropriate level of financial penalty

For the purpose of DEPP 6.5 to DEPP 6.5D and DEPP 6.6.2 G, the term “firm” means firms, sponsors, primary information providers, recognised investment exchanges, qualifying parent undertakings, actuaries, auditors and those unauthorised persons who are not individuals.

The FCA's penalty-setting regime is based on the following principles:

1. (1)

   Disgorgement - a firm or individual should not benefit from any breach;

2. (2)

   Discipline - a firm or individual should be penalised for wrongdoing; and

3. (3)

   Deterrence - any penalty imposed should deter the firm or individual who committed the breach, and others, from committing further or similar breaches.

1. (1)

   The total amount payable by a person subject to enforcement action may be made up of two elements: (i) disgorgement of the benefit received as a result of the breach; and (ii) a financial penalty reflecting the seriousness of the breach. These elements are incorporated in a five-step framework, which can be summarised as follows:

   1. (a)

      Step 1: the removal of any financial benefit derived directly from the breach;

   2. (b)

      Step 2: the determination of a figure which reflects the seriousness of the breach;

   3. (c)

      Step 3: an adjustment made to the Step 2 figure to take account of any aggravating and mitigating circumstances;

   4. (d)

      Step 4: an upwards adjustment made to the amount arrived at after Steps 2 and 3, where appropriate, to ensure that the penalty has an appropriate deterrent effect; and

   5. (e)

      Step 5: if applicable, a settlement discount will be applied. This discount does not apply to disgorgement of any financial benefit derived directly from the breach.

2. (2)

   These steps will apply in all cases, although the details of Steps 1 to 4 will differ for cases against firms (DEPP 6.5A), cases against individuals (DEPP 6.5B) and market abuse cases against individuals (DEPP 6.5C).

3. (3)

   The FCA recognises that a penalty must be proportionate to the breach. The FCA may decrease the level of the penalty arrived at after applying Step 2 of the framework if it considers that the penalty is disproportionately high for the breach concerned. For cases against firms, the FCA will have regard to whether the firm is also an individual (for example, a sole trader) in determining whether the figure arrived at after applying Step 2 is disproportionate.

4. (4)

   The lists of factors and circumstances in DEPP 6.5A to DEPP 6.5D are not exhaustive. Not all of the factors or circumstances listed will necessarily be relevant in a particular case and there may be other factors or circumstances not listed which are relevant.

5. (5)

   The FCA may decide to impose a financial penalty on a mutual (such as a building society), 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 that is not a mutual. Whether a firm is a mutual will not, by itself, increase or decrease the level of a financial penalty.

6. (6)

   Part III (Penalties and Fees) of Schedule 1ZA to the Act specifically provides that the FCA may not, in determining its policy with respect to the amount of penalties, take account of expenses which it incurs, or expects to incur, in discharging its functions.

In a case where the FCA is proposing to impose a financial penalty on a person for 2 or more separate and distinct areas of misconduct, the FCA will consider whether it is appropriate to identify in the decision notice and final notice how the penalty is apportioned between those separate and distinct areas. Apportionment will not, however, generally be appropriate in other cases.