Global Financial Regulators Ratchet Up Fines Amid Falling Enforcement Numbers

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Yin Wilczek

June 15 — Global financial regulators may be bringing fewer actions, but their monetary fines are ballooning, a new report finds.

For example, there was a 135 percent jump in the average size of financial penalties imposed by the Commodity Futures Trading Commission in 2014 compared to 2013, according to Kinetic Partners' “Global Enforcement Review 2015.”

During that same period, the Financial Industry Regulatory Authority saw a 146 percent increase in the average size of its penalties, the report found.

The U.K. Financial Conduct Authority topped those with a whopping 272 percent increase in the average size of its sanctions, according to Kinetic Partners.

However, while their fines were ratcheting up, the number of enforcement actions pursued by the regulators decreased in 2014 compared to 2013.

‘Prohibitively High Fines.'

The report warned that the sanctions averages were impacted by “a relatively small number of big penalties” involving foreign exchange and London Interbank Offered Rate manipulation. However, the figures still show the movement toward more serious sanctions for misconduct.

“There is an emerging trend among certain regulators to focus on complex, high-profile cases and leverage massive penalties,” the report continued. “This indicates a shift in approach to enforcement, with prohibitively high fines becoming the norm.”

The report reviewed five regulators—the CFTC, FINRA, the FCA, the Securities and Exchange Commission and Hong Kong's Securities & Futures Commission (SFC). While all experienced sanctions increases in 2014, only the SEC filed more cases in 2014 than 2013.

Attorneys have remarked upon the trend for ballooning fines, not only by financial regulators but also the Justice Department. 

Areas in the U.S. that have seen dramatically higher fines include the Foreign Corrupt Practices Act, trade sanctions, the False Claims Act and anti-money laundering. In a notable example, Alstom SA agreed in December to pay a record $772 million to settle DOJ bribery charges—the highest ever paid to the department under the FCPA.

Actions Against Individuals 

In other highlights, the report found that actions against individuals formed a significant part of the U.S. regulators' enforcement actions: 59 percent of the enforcement actions brought by the SEC in 2014 were against individuals, while 45 percent of the CFTC's actions in 2014 were against individuals.

The report also suggested that the regulators are using more sophisticated technological approaches to oversee markets.

Kinetic Partners had several recommendations for market participants, including that they invest in compliance and controls. The report warned that “prohibitively high fines are now a settled feature of the market.” Firms' investment in controls “must increasingly reflect this, particularly around market abuse and consumer protection, but also taking into account regulators' priorities in different regions.”

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The report is available at http://www.kinetic-partners.com/wp-content/uploads/Global-Enforcement-Review-2015-Kinetic-Partners.pdf?submissionGuid=6b97df53-1b7a-4ff8-af5e-74602f880744.