As financial markets remain in a state of flux, financial regulation is scrambling to adapt to the changing circumstances – with regulators on both sides of the pond in the process of evaluating and upgrading their frameworks. At the same time, there is a strong message being sent that compliance violations will no longer be allowed to fly under the radar, with a series of high-profile fines and penalties hitting the headlines in recent years.
In the UK, the Financial Conduct Authority (FCA) handed out almost triple the numbers of fines in 2022 than the previous year, according to data from SteelEye’s new Fine Tracker, which compiles and analyses financial services fines across the US, UK and Europe. Notably, although the volume of fines was up by 160%, the total value of these penalties more than halved (from £557 million in 2021 to £215.8 million in 2022), suggesting that the regulator may now be focusing on market breaches across firms of all sizes, rather than targeting the biggest and most visible players.
The US Securities and Exchange Commission (SEC) issued a record $6.4 billion in penalties the same year, across 760 penalty actions – a 9% increase on the previous year, including fines totalling $1.1 billion across 16 Wall Street players for failing to monitor or prevent their workers from using unauthorised messaging apps such as WhatsApp.
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German financial regulators including BaFin (the Federal Financial Supervisory Authority) issued 46 fines totalling €26.41 million, the majority of which (30) were related to reporting delays.
France’s stock market regulator, the Autorité des Marchés Financiers (AMF) fined firms €95 million, including a single fine of €75 million to London-based fund H20 Asset Management for making unauthorised investments in illiquid securities. Out of 15 fines, 10 were related to breaches of professional obligations while four were for market abuse issues.
Netherland’s Authority for the Financial Markets (AFM) was the more cautious of the regulators surveyed, issuing three fines of €903,000 in total, all of which were in relation to money laundering.
“There remains a lot of work to be done by financial services firms to ensure they do not fall short of their obligations. As regulators get more aggressive in their enforcement action, firms need to really think about how robust their compliance programs and policies are. Particularly against the backdrop of recession fears, pressure to perform is mounting. With that, firms of all sizes are putting de-risking strategies in place,” said SteelEye CEO Matt Smith.
“Meanwhile, regulators are using powerful data analytics tools to identify malpractice more accurately among the companies they regulate, meaning more firms are at risk of scrutiny. Investing in technology is key for firms to ensure they can identify risks, and increasingly, this requires an integrated approach to compliance. As such, we expect many players will up-skill and up-tool in 2023.”