Panacea petition for financial advisers and paraplanners FCA fines skim. You can only milk a cow so long before you’re left holding the pail.

I had the good fortune to meet former US President Ronald Reagan a good few years ago while walking along the beach in Santa Monica. Although in his declining years he cut an impressive figure and gave me a very snappy salute and a smile.

In his prime he had an interesting take on Governments and taxation, saying “a Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it”.

The increasing cost of regulation on firms is significant and for firms who have consistently kept a ‘clean sheet’ there is a feeling that this is not being rewarded quite as it should be.

In what form that reward should be had previously been understood to see fines levied for bad practice and behaviour used to reduce the regulatory cost on firms who had ‘done the right thing’ with their customers.

But that is no longer the case.

Indeed it appears quite surprising that many so in the industry (if my recent conversations are to be a guide) are oblivious to the fact that those whopping fines (some £1,461,875,800 in the year to mid December 2014) are not being used to reduce costs in a way that may, indeed should be expected.

We felt that a degree of clarity was now required as the fines were, it seems, just going straight to the Treasury, without passing ‘Go’. A craftiliy legislated ‘skim’ of gargantuan proportions

What seems even more bizarre is that the vast fines levied by the FCA are against, in many cases, banks bailed out by the taxpayer on the actions of the Government.

Yep, you are right. The taxpayer ‘owned’ banks are fined for bad behaviour, therefore, these fines are in effect paid by the taxpayer and not the offending individuals.

In levying these fines the Treasury and the FCA are simply engaging in a breathtaking form of state sponsored and legislated money laundering.

It goes like this.

  • Banks bailed out by the government of the day
  • Bad behaviour of epidemic proportion discovered and/or declared
  • Regulator investigates in a manner that would do General Melchett proud
  • Guilty verdict delivered
  • Sentence predetermined and fines calculated
  • Fines paid to the FCA by the very banks that have been bailed out by the taxpayer.
  • Money returned by FCA to the Treasury, who it could be argued has paid the fine by way of earlier taxpayer bailout.
  • And it’s tea and cakes at the Ritz before you know it.

This is madness. If the banks, especially state supported banks, are such villains keep them out of the FCA’s jurisdiction and budget, quarantine them in the Treasury or Bank of England until they are safe to come out, disease free.

I wrote to the FCA with a ‘Freedom of Information’ request in November, it read as follows:

“The total amount of FCA imposed fines levied so far in 2014, according to the FCA website today stands at £1,471,431,800. There was an understanding, possibly even a requirement in the industry, that fines would be used to reduce the regulatory cost burden on firms. In fact rewarding good practice at the expense of bad. It now appears that this is no longer the case. I would be grateful if you could confirm the following:

 How much of the above figure has been paid away to the Treasury in 2014 for so called ‘good causes’ use? 

On what or whose authority was this ‘pay-away’ made possible

When was that decided?

Was the original intention of cost reduction made clear to the Treasury before the decision to ‘pay-away’? 

Was any attempt made to persuade the Treasury that fines should really be used to offset the regulatory cost burden on firms? 

What was the budgeted cost of regulation to date in 2014? 

What is the actual cost so far for regulation in 2014?”

The reply, now received reads as follows:

Freedom of Information : Right to know request

Thank you for your request under the Freedom of Information Act 2000 (the Act), for information about FCA fine levies and HM Treasury (HMT).  The full request is shown in the attached Annex. 

Your request has now been considered and we hold the information which falls within the scope of your request. I have numbered your request for ease of reference and will answer each point in turn.

1               How much of the above figure has been paid away to the Treasury in 2014 for so called ‘good causes’ use? 

To date, we have received, £1,461,875,800 rounded to the nearest 100, (99.4% of £1,471,431,800 of the fines issued in the calendar year 2014).  The net figure paid to HMT of £1.37bn (as at 10/12/2014) reflects payments made in 2014 to date (iro 2014 fines only)     less 2014/15 budgeted Enforcement costs   which we retain and give back to fee payers.  We have no knowledge of what HMT do with these funds, as once they are paid over it is up to HMT how they use the money.

          The penalty receipts paid over to HMT are as per paragraph 20(6) of Schedule 1ZA Financial Services and Markets Act 2000 (“FSMA”), attached. 

2               On what or whose authority was this ‘pay-away’ made possible.

This was a decision by Parliament, Statutory Instrument 2013 no.418 – Financial Services and Markets – The Payment to Treasury of Penalties (Enforcement Costs) Order 2013.

3               When was that decided?

The above-mentioned Statutory Instrument was laid before Parliament on 27th February 2013 and came into force on 1 April 2013. 

4               Was the original intention of cost reduction made clear to the Treasury before the

          decision to ‘pay-away’?  

          HMT was fully aware of the arrangements in place to return penalty receipts back to the industry prior to introducing Statutory Instrument 2013 No.418.


5               Was any attempt made to persuade the Treasury that fines should really be used to offset the regulatory cost burden on firms? 

The predecessor body, the FSA, did discuss the impact of this new arrangement on firms with HMT and successfully made the case that penalty receipts paid over to HMT should at least be net of our Enforcement costs.  As a consequence, the regulatory cost of Enforcement activity is not borne by the industry.  This is evidenced by firms continuing to receive a “deduction” on their FCA annual fees.      

6               What was the budgeted cost of regulation to date in 2014?  

The FCA’s Ongoing Regulatory Activity (ORA) budget in 2014/15 is £452m as per our published business plan for 2014/15.The budgeted cost of regulation from April to 30 October is £264m. 

7               What is the actual cost so far for regulation in 2014?

          The actual FCA ORA expenditure from 1 April 2014 to 30 October 2014 is £264m, in line with budget.

If you have any queries then please contact me.

So, regulated firms are paying £264m in fees to the regulator to cover the FCA budget, in addition they are paying levies to the FSCS for the 2014/15 budget of £313m,for 2015/16 it will be set at £287m.

The levy can cause considerable distress to small advisory businesses as the sums are often large, unpredictable in amount, timing and require immediate payment.

While all this is going on, £1.37bn in fines is being ‘skimmed off’ to the Treasury and being used, assuming we actually believe the Government spin, for ‘good causes various’ like sending the Tower of London Poppies on a UK tour. Having seen the display last week, packed and ready at the Tower, I think some change may be left over.

To quote another former US President (George Washington) “It is better to offer no excuse than a bad one.” This is unfair, immoral and must stop.

The biggest obstacle to consumers getting easy access to independent financial advice is cost.

The biggest cost to financial services firms after salaries are for regulation.

Surely it does not take too much cerebral activity to calculate that with the FCA costs of £264m plus the FSCS budget of £313m, fines exceed regulatory costs by £894,431,800.

This chould mean that offsetting fines against the cost of regulation and compensation levies could have given the industry ‘good guys’ a ‘free ride’ for over 2 years and those hard pressed ‘consumers’ or give “low end savers” as Mark Garnier MP calls them, access to financial advice at a very much reduced cost as they can benefit too from the reduction in the regulatory cost burden.

Dare I suggest that these fines could have even funded the FSCS based upon the current budget for at least 4 years, again reducing costs for consumers?

That would be a very moral, even sensible use of such large fines would it not Mr. Osborne?

The Treasury is treating the financial services industry as a ‘milking cow’. The cost of demonstrably reprehensible bad behaviour, mostly by banks, should benefit the good guys ultimately reaching their clients, the great British consumer.

Henry Ford famously said, “it is not the employer who pays the wages, they only handle the money. It is the customers who pays the wages”.

And in the world of financial services it is ultimately the consumer who pays the bill for increasing fees by increased advice and product charges.

With politicians thoughts turning to the May 2015 General Election there are some questions that should be asked by those who own and operate regulated financial services businesses should they get door-stepped in the coming months.

The first action should be: “why are you using my industry fines to support Treasury spendin instead of reducing my fees”? 

The second should be to support my Downing Street petition asking that: 

Parliament should reverse SI 2013 No218 allowing consumers to benefit instead by way of lower product charges and access to lower cost independent financial advice as a result of fines for bad behaviour reducing regulatory costs on MY firm.

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