ENF 14.7 Determining the level of a financial penalty in a market abuse case

The FSA's approach to financial penalties in market abuse cases will be consistent with its approach to financial penalties in other disciplinary cases concerning firms and approved persons (see ENF 13.3).

The FSA will take into account all the circumstances of a case when it determines the appropriate level of penalty, if any. The FSA does not propose to use a tariff of penalties for market abuse cases, given the wide range of different types of behaviour that may amount to market abuse or requiring or encouraging.

Section 124(2) of the Act (Statement of policy) states that the FSA's policy in determining the amount of a penalty must include having regard to: (a) whether the behaviour in respect of which the penalty is to be imposed had an adverse effect on the market in question and, if it did, how serious that effect was; (b) the extent to which that behaviour was deliberate or reckless; and (c) whether the person on whom the penalty is to be imposed is an individual.

The FSA considers that the factors which may be relevant when it sets the amount of a penalty in market abuse cases include, the following.

1. (1)

   Adverse effect on markets and the seriousness of that effect.

   A financial penalty must be in proportion to the nature and seriousness of the abuse in question. The following may be relevant:

   1. (a)

      the loss or risk of loss caused to consumers or other market users;

   2. (b)

      the duration and frequency of the behaviour; and

   3. (c)

      the impact of the behaviour on the orderliness of prescribed markets including whether confidence in those markets has been damaged.

2. (2)

   The extent to which the behaviour was deliberate or reckless.In determining whether the behaviour was deliberate or reckless, the FSA will take into account all the circumstances of the behaviour which resulted in the market abuse or requiring or encouraging. For example, the FSA may have regard to whether the person intended or foresaw the consequences of their behaviour, or gave any consideration to the consequences of their behaviour. If the FSA decides that the behaviour was deliberate or reckless, it would be more likely to impose a higher penalty on a person than would otherwise be the case.

3. (3)

   Whether the person on whom the penalty is to be imposed is an individual.This will include having regard to the financial resources and other circumstances of the individual and may include whether there is verifiable evidence of serious financial hardship or financial difficulties if the individual were to pay the financial penalty that would, in the absence of this consideration, be imposed (see also the discussion of this factor in ENF 13.3.3 G (3)).

4. (4)

   The amount of profits accrued or loss avoided.The FSA may have regard to the amount of profits accrued or loss avoided as a result of the behaviour, for example:

   1. (a)

      the FSA will propose a penalty that is consistent with the principle that a person should not benefit from behaviour amounting to market abuse or requiring or encouraging; and

   2. (b)

      the penalty should also act as an incentive to the person and others to comply with required standards of market conduct.

5. (5)

   Conduct following the behaviour of concern.The FSA may take into account:

   1. (a)

      the conduct of the person in bringing (or failing to bring) the behaviour to the FSA's attention (or the attention of other regulatory authorities, where relevant) quickly, effectively and completely;

   2. (b)

      the degree of co-operation the person showed during the investigation of the behaviour by the FSA or any other regulatory authority allowed to share information with the FSA, such as an RIE or the Takeover Panel. (In this context, persons are reminded that they may have a duty to co-operate with other regulatory authorities; for example, MAR 4.3.4 G requires firms to whom that rule applies to assist the Takeover Panel in certain circumstances). Where a person has fully cooperated with an investigation, this will be a factor tending to reduce the level of financial penalty;

   3. (c)

      any remedial steps taken by the person since the behaviour was identified (whether on their own initiative or that of the FSA or another regulatory authority) including correcting any misleading statement or impression, identifying whether consumers or other market users have suffered loss and compensating them, taking disciplinary action against staff involved (if appropriate), and taking steps to ensure similar problems do not happen in the future; and

   4. (d)

      whether the person concerned has complied with any requirements or rulings of another regulatory authority relating to his behaviour (for example, where relevant, those of the Takeover Panel).

6. (6)

   Disciplinary record and compliance history.The disciplinary record and general compliance history of the person may be taken into account, including whether the FSA has previously taken any action against the person for behaviour amounting to market abuse or requiring or encouraging which resulted in adverse findings. For example, the compliance history of a person could lead to the FSA increasing the penalty where the person has engaged in behaviour falling within ENF 14.3.1 G (1) or ENF 14.3.1 G (2). In assessing the relevance of a person's compliance history, the age of the previous behaviour will be taken into account, although a long-standing matter may still be relevant. However, in undertaking this assessment, private warnings will not be taken into account.

7. (7)

   Previous action taken by the FSA.The action the FSA has taken over previous similar behaviour may be taken into account. The FSA will seek to ensure consistency when it determines the appropriate level of penalty. For example, any disciplinary action taken in relation to similar market abuse cases will clearly be a relevant factor. However, as stated at ENF 14.7.2 G, the FSA does not intend to set up a tariff system and there may be other relevant factors which could increase or decrease the seriousness of the matter.

8. (8)

   Action taken by other regulatory authorities.Action taken or to be taken by other regulatory authorities (for example, the Takeover Panel or an RIE) in relation to the behaviour may be relevant. The degree to which any remedial or compensatory steps required by other regulatory authorities have been taken (and whether taken promptly) may also be relevant.

9. (9)

   The timing of any agreement as to the amount of the penalty for market abuse. The FSA and the person on whom a penalty is to be imposed may seek to agree the amount of any financial penalty and other terms. In recognition of the benefits of such agreements in disciplinary actions, ENF 13.7 provides that the amount of the penalty which might otherwise have been payable will be reduced to reflect the stage at which the FSA and the person concerned reach an agreement. The same regime is to apply to agreements as to the amount of the penalty in market abuse cases.2

The factors listed in ENF 14.7.4 G are not exhaustive, and all the relevant circumstances of the case will be taken into consideration.

1A person may ask the FSA to permit the person to pay a financial penalty in a market abuse case by instalments. However, the FSA will consider agreeing to payment of a financial penalty by instalments only where there is verifiable evidence of serious financial hardship or financial difficulties if the person were required to pay the full payment in a single instalment. This reflects the fact that the purpose of a penalty is not to render a person insolvent or to threaten solvency. The FSA will determine the appropriate level and number of instalments having regard to the overall circumstances of the case. However, the period within which the full payment of the penalty must be made will not generally exceed one year from the date of the final notice.