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FCA’s £819m in fines revenue gives Osborne room to fund worthy causes

The Financial Conduct Authority has imposed more than £800m of fines on banks and other companies in the first half of this year – giving the chancellor the opportunity to make eye-catching allocations to worthy causes in this week’s budget.

The City regulator handed out fines worth £819m in the six months to the end of June, up from £136m in the same period a year earlier.

The fines are paid by the FCA to the Treasury and George Osborne, the chancellor, has used past budgets to earmark particular fines for multimillion giveaways to popular causes.

David Cameron, the prime minister, announced over the weekend that a national memorial was to be created for all UK victims of terrorism and this would be funded by fines imposed on banks for rigging the key Libor interest rate. Osborne will give more details in Wednesday’s budget.

In the last parliament, Osborne allocated £450m of Libor fines to military-related causes. In last year’s autumn statement, he said £1.1bn of penalties against banks for manipulating the foreign exchange market would be spent on the National Health Service.

The pool of fines for the first half of this year was increased by two penalties worth a combined £511m for rigging financial markets.

David Cameron said in April that Deutsche Bank’s £227m fine for Libor rigging would be used to fund the creation of 50,000 apprenticeships. The record £284m imposed on Barclays in May for colluding with other banks to manipulate foreign exchange rates has not yet been allocated to a cause.

There were two other big penalties in the first half that might also catch Osborne’s attention. Lloyds Banking Group received a £117m penalty last month for mishandling compensation claims for payment protection insurance. The FCA also fined Bank of New York Mellon £126m in April for breaking rules designed to protect clients’ assets.

Fines that are not earmarked for particular causes are used for general government spending.

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Despite containing some of the FCA’s biggest fines, the total for the first half of this year is smaller than the record £1.34bn that the regulator meted out in the second half of 2014. Those penalties took the total of last year’s fines to £1.47bn – three times the previous annual record.

Tracey McDermott, the FCA’s head of enforcement and financial crime, said: “The timing, number and amounts of the fines or other sanctions we impose will always vary from year to year depending on the type of case and other factors such as whether cases settle or are litigated. We don’t set ourselves targets for the number of fines we will issue in a given period – what we look at is whether the sanctions we do impose are having an impact on behaviour.”

The number of fines in the first half of this year rose to 24 from 18 a year earlier. The smallest penalty was £9,900 against the internal auditor of Bank of Beirut for lack of openness in dealing with the regulator.

Rachel Couter, a partner at the law firm King & Wood Mallesons, said the fines showed there was no let-up in the FCA’s hardline approach to wrongdoers. “This is really more of the same as 2014, with further fines for rate fixing, transaction reporting failures, mis-selling, client asset breaches and complaints handling failures.”

The FCA said in its annual report last week that the £1.4bn in fines that was collected in the financial year that ended on 31 March was more than for the previous four years combined.


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