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| Financial Law Update | Back to article summary. |
| The Financial Regulator bares its teeth | ||
| Joe Beashel |
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| The Financial Regulator has recently handed out some of the largest fines in its history, Quinn Insurance Limited and Irish Nationwide Building Society received fines of €3,250,000 and €50,000 respectively in October while smaller fines were imposed on Apex Fund Services (Ireland) Limited in August. Sean Quinn Senior was also personally fined €200,000. The imposition of substantial fines signals a significant directional change for the Financial Regulator writes Joe Beashel. In the past compliance breaches were typically dealt with in private and it has only been in recent months that the number of fines has started to increase and only very recently that such headline grabbing fines were issued. | ||
| Why the change? Although in place since 2004 we have only seen the Financial Regulator publish administrative sanctions including fines of relatively small amounts, c€5,000, over the last year or so. It seems the Financial Regulator has been building up its own experience in what is a rather complicated administrative sanctions procedure. No doubt it is sensitive to any legal challenges to its decisions being mounted so it had started slowly and treaded carefully. A combination of a confidence with the procedure and public reaction to the current financial turmoil have no doubt combined to cause the Financial Regulator to bare its teeth, to use the metaphor in the title to this article.
Are more fines likely? I have no inside or special knowledge but one would have to conclude that they must be. From an academic perspective, it is widely accepted that the imposition of fines plays an important function in the regulation of financial services by promoting desired behaviours in regulated firms and by individuals in those firms. The absence of large fines to date has been notable, especially when one compares the practice of the FSA in the UK. From a practical perspective, given the effects of the continuing global financial crisis, there is pressure on all regulators to be seen to regulate the financial services industry effectively and to do so publicly rather than in private. There is no reason to think that the Financial Regulator is immune from such pressure and in any event, as I mention above, the Financial Regulator was increasing the use of its administrative sanctions powers even before the full force of the global financial crisis hit. How should firms react? There is no magic formula to avoid fines applied to you or your organisation. Rather each firm will need a combination of getting its compliance processes and procedures right, hiring and training the right people, building and supporting adequately the legal and compliance and internal audit functions and fostering an appropriate “compliance aware” culture throughout the organisation. Robust escalation procedures to deal with situations when they do arise are essential. Given the very real possibility of substantial fines I would suggest that all firms, even those that feel they have all these elements in place, will need to take extra care, possibly with the assistance of experienced external advisors, to review these processes and procedures and to consider how best to inform the Financial Regulator when issues do arise. Besides a fine what else could happen? The Financial Regulator has quite a range of options open to it when using its administrative sanction powers. In particular it can issue: - A caution or reprimand. - A direction to refund or withhold all or part of any amount of money charged or paid, or to be charged or paid with the provision of a financial service. - A direction disqualifying a person from being involved in the management of a regulated financial service provider. - Direction to cease the contravention if it is found the contravention is continuing. - Direction to pay all or part of the costs of the investigation and Inquiry. - The maximum fine payable is €5 million for a corporate body and €500,000 in the case of an individual. Summary One of the many effects of the current global financial crisis is to place the regulation of financial services firms firmly in the public spotlight. This necessarily puts pressure on regulators worldwide to increase their supervision of firms regulated by them. A breach of a regulatory requirement can have many consequences including damage to the reputation of the firm in the eyes of customers but it is clear that such breaches now bring the prospect of fines and other formal administrative sanctions for both firms and senior management at these firms, closer than ever before. |
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Author Details: Joe Beashel is a partner in the Banking and Financial Services Department and head of the firm’s Regulatory Risk Management and Compliance Group at Matheson Ormsby Prentice and can be contacted on +353 1 232 2000 or by email: joe.beashel@mop.ie. Further information on Matheson Ormsby Prentice is available at www.mop.ie. |
