ENF 13.7 1Discount for early settlement
Persons subject to disciplinary action may be prepared to agree the amount of any financial penalty and other conditions which the FSA seeks to impose by way of disciplinary action. Such conditions might include, for example, the amount or mechanism for the payment of compensation to consumers. The FSA recognises the benefits of such agreements, in that they offer the potential for securing earlier redress or protection for consumers and the saving of cost to the person concerned and the FSA itself in contesting the financial penalty. The penalty that might otherwise be payable in respect of misconduct or contravention by the person concerned will therefore be reduced to reflect the timing of any settlement agreement.
In appropriate cases the FSA's approach will be to negotiate with the person concerned to agree in principle the amount of a financial penalty having regard to the factors set out in ENF 13.3. (This starting figure will take no account of the existence of the settlement discount scheme described in this section.) Such amount ("A") will then be reduced by a percentage of A according to the stage in the process at which agreement is reached. The resulting figure ("B") will be the amount actually payable by the person concerned in respect of the misconduct or contravention. However, where part of a proposed financial penalty specifically equates to the disgorgement of profit accrued or loss avoided then the percentage reduction will not apply to that part of the penalty.
- (1)
FSA has identified four stages of a disciplinary action for these purposes:
- (a)
the period from commencement of an investigation until the FSA has
- (i)
a sufficient understanding of the nature and gravity of the misconduct or contravention to make a reasonable assessment of the appropriate penalty; and
- (ii)
communicated that assessment to the person concerned and allowed a reasonable opportunity to reach agreement as to the amount of the penalty ("stage 1");
- (i)
- (b)
the period from the end of stage 1 until the expiry of the period for making written representations or, if sooner, the date on which the written representations are sent in response to the giving of a warning notice ("stage 2");
- (c)
the period from the end of stage 2 until the giving of a decision notice ("stage 3");
- (d)
the period after the end of stage 3, including proceedings before the Tribunal and any subsequent appeals ("stage 4").
- (a)
- (2)
The communication of the FSA's assessment of the appropriate penalty for the purposes of ENF 13.7.3 G (1)(a) need not be in a prescribed form but will include an indication of the breaches alleged by the FSA. It may include the provision of a draft warning notice.
- (3)
The reductions in penalty will be as follows:
Stage at which agreement reached
Percentage reduction
Stage 1
30
Stage 2
20
Stage 3
10
Stage 4
0
- (1)
Any settlement agreement between the FSA and the person concerned will therefore need to include a statement as to the appropriate penalty discount in accordance with this procedure.
- (2)
In certain circumstances the person concerned may consider that it would have been possible to reach a settlement at an earlier stage in the action, and argue that it should be entitled to a greater percentage reduction in penalty than is suggested by the table at ENF 13.7.3 G (3). It may be, for example, that the FSA no longer wishes to pursue disciplinary action in respect of all of the acts or omissions previously alleged to give rise to the contravention of a requirement. In such cases, the person concerned might argue that it would have been prepared to agree an appropriate penalty at an earlier stage and should therefore benefit from the discount which would have been available at that time. Equally, FSA staff may consider that greater openness from the person concerned could have resulted in an earlier settlement.
- (3)
Arguments of this nature risk compromising the goals of greater clarity and transparency in respect of the benefits of early settlement, and invite dispute in each case as to when an agreement might have been possible. It will not usually be appropriate therefore to argue for a greater reduction in the amount of penalty on the basis that settlement could have been achieved earlier.
- (4)
However, in exceptional cases FSA may accept that there has been a substantial change in the nature or seriousness of the disciplinary action being taken against the person concerned, and that an agreement would have been possible at an earlier stage if the action had commenced on a different footing. In such cases the FSA and person concerned may agree that the amount of the reduction in penalty should reflect the stage at which a settlement might otherwise have been possible.