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DEPP 6.7 Discount for early settlement

DEPP 6.7.1G

Persons subject to enforcement action may be prepared to agree the amount of any financial penalty, or the length of any period of suspension, restriction, condition,5 limitation or disciplinary prohibition5 (see DEPP 6A)4, and other conditions which the FCA seeks to impose by way of such action. These4 conditions might include, for example, the amount or mechanism for the payment of compensation to consumers. The FCA recognises the benefits of such agreements, as4 they offer the potential for securing earlier redress or protection for consumers and a cost saving4 to the person concerned and to the FCA4 in contesting the financial penalty or other disciplinary action4. The penalty that might otherwise be payable, or the length of the period of suspension, restriction,5 condition4 or disciplinary prohibition5 that might be imposed, for4 a breach by the person concerned will therefore be reduced to reflect the timing of any settlement agreement.

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2The settlement discount scheme applied to financial penalties

DEPP 6.7.2G

In appropriate cases the FCA's3 approach will be to negotiate with the person concerned to agree in principle the amount of a financial penalty having regard to the FCA's 3statement of policy as set out in DEPP 6.5 to DEPP 6.5D and DEPP 6.6.1 (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 scheme set out in DEPP 6.7.3G to DEPP 6.7.3CG6. The resulting figure ("B") will be the amount actually payable by the person concerned in respect of the breach. 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.

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DEPP 6.7.3G

  1. (1)

    Subject to DEPP 6.7.3G(4) a settlement discount is available only in cases where a settlement agreement (which may be a focused resolution agreement) is reached during the period from commencement of an investigation until the FCA has:6

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    1. (a)

      a sufficient understanding of the nature and gravity of the breach to make a reasonable assessment of the appropriate penalty; and6

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    2. (b)

      communicated that assessment to the person concerned and given them reasonable opportunity to reach agreement as to the amount of the penalty ("stage 1").6

  2. (2)

    The communication of the FCA's3 assessment of the appropriate penalty for the purposes of DEPP 6.7.3G(1)(b)6 need not be in a prescribed form but will include an indication of the breaches alleged by the FCA3. It may include the provision of a draft warning notice.

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  3. (3)

    Subject to DEPP 6.7.3.G(4), in relation to any settlement agreement other than a focused resolution agreement the reduction in penalty will be as follows:6

    1. (a)

      30% if the agreement is concluded during stage 1; and6

    2. (b)

      0% in any other case.6

  4. (4)

    Where stage 1 has been started but no settlement agreement has been agreed before 1 March 2017:6

    1. (a)

      if any agreement is reached to settle the case between the period from the end of stage 1 until the expiry of the period for making representations, or, if sooner, the date on which the representations are sent in response to the giving of a warning notice, there will be a reduction of 20% in the penalty; and6

    2. (b)

      if any agreement is reached to settle the case between the expiry of the period of making representations, or, if sooner, the date on which representations are sent in response to the giving of a warning notice and the giving of a decision notice, there will be a reduction of 10% in the penalty.6

DEPP 6.7.3AG

6The reductions in penalty in cases involving a focused resolution agreement will be as follows.

  1. (1)

    Where agreement is reached in relation to all relevant facts and all issues as to whether those facts constitute a breach (or more than one breach):

    1. (a)

      30% if the agreement is concluded during stage 1; and

    2. (b)

      0% in any other case.

  2. (2)

    Where agreement is reached in relation to all relevant facts:

    1. (a)

      15 to 30% if the agreement is concluded during stage 1; and

    2. (b)

      0% in any other case.

  3. (3)

    Where the agreement reached does not fall within either DEPP 6.7.3AG(1) or DEPP 6.7.3AG(2):

    1. (a)

      0 to 30% if the agreement is concluded during stage 1; and

    2. (b)

      0% in any other case.

  4. (4)

    Where a focused resolution agreement is followed:

    1. (a)

      before the end of stage 1, by a complete settlement agreement, the reduction is determined under DEPP 6.7.3G and not DEPP 6.7.3AG.

    2. (b)

      after the end of stage 1, by a complete settlement agreement, the reduction is determined under DEPP 6.7.3AG and not DEPP 6.7.3G.

DEPP 6.7.3BG

6The decision maker responsible for applying DEPP 6.7.3AG is:

  1. (1)

    The settlement decision makers in cases in which the focused resolution agreement is followed, after stage 1 has ended, by a complete settlement agreement.

  2. (2)

    The RDC in all other cases.

DEPP 6.7.3CG

6Where DEPP 6.7.3AG specifies that the reduction will be within a range, the decision maker identified by DEPP 6.7.3BG will determine the appropriate figure within the range. Factors relevant to this determination may include:

  1. (1)

    the extent to which the position taken by the person subject to enforcement action on the disputed issues at the time the focused resolution agreement is entered into is reflected in the terms of the decision notice.

  2. (2)

    any saving of time or public resources as a result of the focused resolution agreement.

DEPP 6.7.4G
  1. (1)

    Any settlement agreement6 between the FCA3 and the person concerned will therefore need to include a statement as to the appropriate penalty discount in accordance with this procedure.

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  2. (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 DEPP 6.7.3G (3). It may be, for example, that the FCA3 no longer wishes to pursue its action in respect of all of the acts or omissions previously alleged to give rise to the breach. 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, FCA3 staff may consider that greater openness from the person concerned could have resulted in an earlier settlement.

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  3. (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. (4)

    However, in exceptional cases the FCA3 may accept that there has been a substantial change in the nature or seriousness of the 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 FCA3 and person6 concerned may agree that the amount of the reduction in penalty should reflect the stage at which a settlement might otherwise have been possible or, where the settlement agreement is a focused resolution agreement, the decision maker identified by DEPP 6.7.3BG may take this into account when determining the appropriate figure within the applicable range.6

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DEPP 6.7.5G

In cases in which the settlement discount scheme is applied, the fact of settlement and the level of the discount to the financial penalty imposed by the FCA3 will be set out in the final notice.

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The settlement discount scheme applied to suspensions, restrictions and conditions

DEPP 6.7.6G

2The settlement discount scheme which applies to the amount of a financial penalty, described in DEPP 6.7.2 G to DEPP 6.7.5 G, also applies to the length of the period of a suspension, restriction,5 condition or disciplinary prohibition (other than a permanent disciplinary prohibition)5, having regard to the FCA's3 statement of policy as set out in DEPP 6A.3. No settlement discount is available with respect to a permanent disciplinary prohibition.5 The settlement discount scheme does not apply to the length of the period for which approvals under section 59 of the Act have effect as a result of a limitation, as different considerations apply to determining the appropriate length of this period: see DEPP 6A.1.5G and DEPP 6A.3AG. However, the FCA will take into account that the approved person is willing to enter into a settlement agreement when determining the appropriate period.4

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