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Tougher teeth needed

Financial Times: Tougher teeth needed

“Why should Royal Dutch/Shell have been hit for £17m for market abuse while the largest fine for mis-selling was a mere £1.9m handed out to Lloyds TSB for the precipice bonds affair?”

Wednesday 31 August 2005

By Martin Dickson

Published: August 31 2005

The Financial Services Authority barks a lot about mis-selling of products but does it have enough bite?

Which? the consumer campaigning association, thinks not.

In a paper published yesterday, it calls on the FSA to impose fines so large on companies guilty of mis-selling that their profit is hit and big investors start making waves.

Fines by the FSA’s regulatory decisions committee are something of an evolving black art.

Why should Royal Dutch/Shell have been hit for £17m for market abuse while the largest fine for mis-selling was a mere £1.9m handed out to Lloyds TSB for the precipice bonds affair? True, Lloyds also made £98m in compensation payments but so it should. The arguments against larger corporate fines for really serious offences are that they hurt shareholders rather than their managerial agents and that they may undermine the UK’s culture of co-operation between the regulator and regulated.

But neither argument is that strong. Larger fines might sufficiently stir up investors that they replace their agents and that knowledge should act as a deterrent to bad behaviour.

Big fines alone should not undermine the City’s culture.

That would more likely be the result of a far more confrontational approach by the regulator across the board.

Certainly, the fines the FSA has levied so far for mis-selling look on the light side but, having now established some form in this area, it cannot easily adjust the tariff upwards without accusations of unfairness.

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