Disgorgement - a firm or individual should not benefit from any breach;
Discipline - a firm or individual should be penalised for wrongdoing; and
The total amount payable by a person subject to enforcement action may be made up of two elements: (i) disgorgement of the benefit received as a result of the breach; and (ii) a financial penalty reflecting the seriousness of the breach. These elements are incorporated in a five-step framework, which can be summarised as follows:
Step 1: the removal of any financial benefit derived directly from the breach;
Step 2: the determination of a figure which reflects the seriousness of the breach;
Step 3: an adjustment made to the Step 2 figure to take account of any aggravating and mitigating circumstances;
Step 4: an upwards adjustment made to the amount arrived at after Steps 2 and 3, where appropriate, to ensure that the penalty has an appropriate deterrent effect; and
Step 5: if applicable, a settlement discount will be applied. This discount does not apply to disgorgement of any financial benefit derived directly from the breach.
These steps will apply in all cases, although the details of Steps 1 to 4 will differ for cases against firms (DEPP 6.5A), cases against individuals (DEPP 6.5B) and market abuse cases against individuals (DEPP 6.5C).
The FCA3 recognises that a penalty must be proportionate to the breach. The FCA3 may decrease the level of the penalty arrived at after applying Step 2 of the framework if it considers that the penalty is disproportionately high for the breach concerned. For cases against firms, the FCA3 will have regard to whether the firm is also an individual (for example, a sole trader) in determining whether the figure arrived at after applying Step 2 is disproportionate.333
The lists of factors and circumstances in DEPP 6.5A to DEPP 6.5D are not exhaustive. Not all of the factors or circumstances listed will necessarily be relevant in a particular case and there may be other factors or circumstances not listed which are relevant.
The FCA3 may decide to impose a financial penalty on a mutual (such as a building society), even though this may have a direct impact on that mutual’s customers. This reflects the fact that a significant proportion of a mutual’s customers are shareholder-members; to that extent, their position involves an assumption of risk that is not assumed by customers of a firm that is not a mutual. Whether a firm is a mutual will not, by itself, increase or decrease the level of a financial penalty.3
Part III (Penalties and Fees) of Schedule 1ZA3 to the Act specifically provides that the FCA3may not, in determining its policy with respect to the amount of penalties, take account of expenses which it incurs, or expects to incur, in discharging its functions.3