The FSA’s fining regime is getting tougher with new powers which may increase fines threefold. The thinking is that it may let the FSA target bigger firms better. Perhaps. I have read the latest announcement and indeed the CP issued last year but I see something lacking - any evidence of fining working against the big organisations.
When the FSA talks about fines and deterrence it means it in two ways – first deterrence of the firm or person from future transgressions and second deterrence of the wider industry, particularly those in the same line of business as the ‘finee’ which might have been tempted to behave in the same way.
But does it work? I think it works at least within its own terms for IFAs and IFA directors in influential functions. They will have seen what can happen to them in the last couple of weeks and probably checked to make sure they are not doing the same. Whether the two big enforcement actions against IFAs were fair is different matter perhaps for another blog.
However for bigger organisations I have my own little anecdote. I once had a conversation with a friend who worked for a big pharmaceutical organisation. She was moving to the press office on secondment and asked me to talk her through what it might be like from a journalist’s point of view. I asked how interested the national papers and broadcast media were in the firm – answer not very unless there was an epidemic or a charity turned on them. Did they face any influential trade papers? Not really. I asked was there a regulator that would fine the company. “Oh. That’s not a problem. We are fined once a week somewhere in the world,” she said.
I am not trying to say the same applies to the big UK financial concerns, certainly not in this climate. But is there a danger that a fine simply becomes a sort of company equivalent of an occupational hazard? I would like to see the research to show how it affects say an insurer or bank that has been fined and most importantly their peers. How long does this deterrence work within the fined organisation? How many lessons are learnt by others? Okay. You can’t stick a number on this but it should be possible to show some qualitative evidence. Three times bigger fines may be what is needed. It sounds good, it plays well, but does it really work?
