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December 12, 2016

Bank fines fall to lowest level since financial crisis

Financial Conduct Authority proposes tougher rules for crowdfunding platforms.

By James Nunns

The Financial Conduct Authority has imposed fewer fines on banks and other City firms this year than in 2008.

According to the latest figures, the regulator handed out only £22.6m worth of penalties in 2016, the lowest since 2007 when just £5.3m in fines were imposed.

The figure is also represents just 3% of last year’s total when 40 fines were issued that totalled £905m.

The main reason for the decline is due to fines related to the rigging of foreign exchange markets and the benchmark Libor interest rate not being repeated.

2016’s biggest fine went to Aviva, worth £8.2m, for the oversight of an outsourcer looking after clients’ money. This fine is just a drop in the pond of the £284m fine imposed on Barclays in 2015 for the manipulation of foreign exchange.

The decline in fines could suggest a softer approach being taken by Andrew Bailey, who took over as the FCA’s CEO in July. However, in a statement to The Guardian he said: “If we were to maintain the level that we had a few years ago, it would imply we were having something on the level of Libor and foreign exchange every year. If that happened, we would be asking ourselves: ‘What is going on?’ We would need a major blowup every year to maintain that level of activity and that isn’t our objective.”

The signs that the FCA won’t be taking a soft approach were revealed with its proposals for tougher rules to protect investors in crowdfunding platforms.

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Crowdfunding is where platforms look to tap into consumers that want to buy equity, lend money, or buy a stake in a start-up, although there is another form of crowdfunding that is loan based, also called peer-to-peer lending.

The FCA said that currently it is too difficult for investors to compare platforms with each other, too difficult for investors to assess the risks and returns of investing on a platform, and that the complex structures of some firms introduce operational risks and/or conflicts of interest that are not being managed sufficiently.

The regulator plans to consult on a number of rules across different areas that could include restrictions on cross-platform investment and extending mortgage-lending standards to loan-based platforms.

The FCA’s current rules in this area only came into force in April 2014 and a 2016 call for input in July was designed to review these rules.

Bailey said: “Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interests of consumers.

“Based on our findings to date, we believe it is necessary to strengthen investor protection in a number of areas. We plan to consult next year on new rules to address the issues we have identified.”

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