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FSA fines hit record with more to come

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By Jennifer Hughes

Published: December 23 2008 23:31 | Last updated: December 23 2008 23:31

A record number of fines has been imposed by the City watchdog this year as it cracked down on consumer issues such as mortgage fraud and the mis-selling of payment protection insurance.

Almost 50 penalties have been announced to date by the Financial Services Authority, more than twice as many as last year and half as much again as the previous record.

Another heavy year of penalties is expected in 2009.

Fines so far have totalled £22.6m – the second highest amount yet. It would be a record were it not for the distorting effect on the 2004 £24.8m record of the £17m fine against Shell.

The regulator has also pursued a series of cases related to mortgage fraud and for the first time began fining individual brokers, many for falsifying applications.

Fines relating to PPI mis-selling have accounted for more than £10m of the total this year, including £7m against Alliance & Leicester, the highest fine this year. PPI is designed to cover credit repayments in the event of accident, sickness or unemployment. Other high-profile scalps taken in the campaign include those of Egg, the internet bank, Land of Leather, the retailer, and HFC Bank, the UK unit of HSBC’s US operations.

Margaret Cole, director of enforcement at the FSA, said: “Our starting point is to have a strong and visible enforcement team. It’s good for it to be doing what it is meant to.”

Observers said the FSA was applying higher fines in a sign it was acting on its much mocked promises to create a credible deterrent. Angela Hayes, a partner at Mayer Brown, said: “It looks as if, on the face of it, the FSA is delivering on its promise to be tough.”

The FSA’s relatively low fines and patchy record on winning cases had led to unfavourable comparisons with other regulators such as the US Securities and Exchange Commission, known for its high-profile handcuffs-and-headlines approach.

This year, the FSA launched its first criminal prosecutions. Three cases are due to come to trial next year and Ms Cole has signalled there will be more. Lawyers expect the regulator to produce a similar, if not higher, number of cases next year but Ms Cole refused to be drawn. “We deal with what comes through,” she said. “We would expect to see significant enforcement activity.”

City lawyers have noticed an upturn in the number of preliminary investigations by the regulator before it decides whether to take a case further.

Sara George, a former FSA lawyer now at Allen & Overy, said: “I can’t see anything other than a very substantial increase next year even if only a small proportion of the current investigations make their way right through the system.

“It’s a lot easier to detect improper conduct when markets are bad. People start noticing things they wouldn’t have before,” she added.

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