DEPP Decision Procedure and Penalties Manual

You are viewing the Handbook in the past on 06/04/2010

Used in

Export part as

DEPP 1

Application and Purpose

DEPP 1.1

Application and Purpose

  • 28/08/2007

Application

DEPP 1.1.1

handbook-guidance
This manual (DEPP) is relevant to firms, approved persons and other persons, whether or not they are regulated by the FSA. It sets out:
(1) the FSA's decision-making procedure for giving statutory notices. These are warning notices, decision notices and supervisory notices (DEPP 1.2 to DEPP 5);
(2) the FSA's policy with respect to the imposition and amount of penalties under the Act (see DEPP 6);
(3) the FSA's policy with respect to the conduct of interviews by investigators appointed in response to a request from an overseas regulator (DEPP 7).

Purpose

DEPP 1.1.2

handbook-guidance
The purpose of DEPP is to satisfy the requirements of sections 69(1), 93(1), 124(1), 169(7), 210(1) and 395 of the Act that the FSA publish the statements of procedure or policy referred to in DEPP 1.1.1 G.

DEPP 1.2

Introduction to statutory notices

  • 28/08/2007

Statutory notices

DEPP 1.2.1

handbook-guidance
Section 395 of the Act (The FSA's procedures) requires the FSA to publish a statement of its procedure for the giving of statutory notices. The procedure must be designed to secure, among other things, that the decision which gives rise to the obligation to give a statutory notice is taken by a person not directly involved in establishing the evidence on which that decision is based. The types of statutory notices and related notices, and the principal references to them in the Act and DEPP are set out in DEPP 1.2.2 G.
  • 28/08/2007

DEPP 1.2.2

handbook-guidance
Table: Summary of statutory and related notices
  • 28/08/2007

DEPP 1.2.3

handbook-guidance
In DEPP the supervisory notice about a matter first given to the recipient is referred to as the "first supervisory notice" and the supervisory notice given after consideration of any representations is referred to as the "second supervisory notice".
  • 28/08/2007

DEPP 1.2.4

handbook-guidance
The requirement in section 395 of the Act to publish a procedure for the giving of notices does not extend to the giving of a notice of discontinuance or a final notice. Neither of these notices is a statutory notice for the purposes of DEPP; nor is the decision to give such a notice a statutory notice associated decision.
  • 28/08/2007

The decision makers

DEPP 1.2.5

handbook-guidance
Decisions on whether to give a statutory notice will be taken by a 'decision maker'. The FSA's assessment of who is the appropriate decision maker is subject to the requirements of section 395 of the Act and will depend upon the nature of the decision, including its complexity, importance and urgency. References to the 'decision maker' in DEPP are to:
(1) the Regulatory Decisions Committee (RDC); or
(2) FSA staff under executive procedures; or
(3) FSA staff under the settlement decision procedure.
  • 28/08/2007

DEPP 1.2.6

handbook-guidance
The decision maker will also take decisions associated with a statutory notice (a 'statutory notice associated decision'). Statutory notice associated decisions include decisions:
(1) to set or extend the period for making representations;
(2) on whether the FSA is required to give a copy of the statutory notice to any third party and, if so, the period for the third party to make representations; and
(3) on whether to refuse access to FSA material, relevant to the relevant statutory notice, under section 394 of the Act.
  • 28/08/2007

DEPP 1.2.7

handbook-guidance
In each case, the decision maker will make decisions by applying the relevant statutory tests, having regard to the context and nature of the matter, that is, the relevant facts, law, and FSA priorities and policies (including on matters of legal interpretation).
  • 28/08/2007

DEPP 1.2.8

handbook-guidance
The FSA will make and retain appropriate records of those decisions, including records of meetings and the representations (if any) and materials considered by the decision makers.
  • 28/08/2007

DEPP 1.2.9

handbook-guidance
DEPP 2 to DEPP 5 set out:
(1) which decisions require the giving of statutory notices and who takes them (DEPP 2);
(2) the nature and procedures of the RDC (DEPP 3);
(3) the procedure for decision making by FSA staff under executive procedures (DEPP 4);
(4) the procedure for decision making by FSA staff under the settlement decision procedure (DEPP 5).
  • 28/08/2007

Export chapter as

DEPP 2

Statutory notices and the allocation of decision making

DEPP 2.1

Statutory notices

  • 28/08/2007

When statutory notices are required

DEPP 2.1.1

handbook-guidance
The circumstances in which the warning notice and decision notice procedure apply are set out in DEPP 2 Annex 1.
  • 28/08/2007

DEPP 2.1.2

handbook-guidance
The circumstances in which the supervisory notice procedure apply are set out in DEPP 2 Annex 2.
  • 28/08/2007

DEPP 2.1.3

handbook-guidance
DEPP 2 Annex 1 and DEPP 2 Annex 2 identify the provisions of the Act or other enactment giving rise to the need for the relevant notice, and whether the decision maker is the RDC or FSA staff under executive procedures in each case.
  • 28/08/2007

Consistent decision making

DEPP 2.1.4

handbook-guidance
FSA staff responsible for the taking of a statutory notice decision under executive procedures may refer the matter to the RDC for the RDC to decide whether to give the statutory notice if:
(1) the RDC is already considering, or is shortly to consider, a closely related matter; and
(2) the relevant FSA staff believe, having regard to all the circumstances, that the RDC should have responsibility for the decision. The relevant considerations might include:
(a) the desirability of consistency in FSA decision making;
(b) potential savings in the time and cost of reaching a decision;
(c) the factors identified in DEPP 3.3.2 G as relevant to an assessment of whether a decision should be regarded as straightforward.
  • 28/08/2007

DEPP 2.2

Warning notices and first supervisory notices

  • 28/08/2007

DEPP 2.2.1

handbook-guidance
If FSA staff consider that action requiring a warning notice or first supervisory notice is appropriate, they will recommend to the relevant decision maker that the notice be given.
  • 28/08/2007

DEPP 2.2.2

handbook-guidance
For first supervisory notices, the FSA staff will recommend whether the action should take effect immediately, on a specified date, or when the matter is no longer open to review (see DEPP 2.2.5 G).
  • 28/08/2007

DEPP 2.2.3

handbook-guidance
The decision maker will:
(1) consider whether the material on which the recommendation is based is adequate to support it; the decision maker may seek additional information about or clarification of the recommendation, which may necessitate additional work by the relevant FSA staff;
(2) satisfy itself that the action recommended is appropriate in all the circumstances;
(3) decide whether to give the notice and the terms of any notice given.
  • 28/08/2007

DEPP 2.2.4

handbook-guidance
If the FSA decides to take no further action and the FSA had previously informed the person concerned that it intended to recommend action, the FSA will communicate this decision promptly to the person concerned.
  • 28/08/2007

DEPP 2.2.5

handbook-guidance
A matter is open to review (as defined in section 391(8) (Publication) of the Act) (in relation to a supervisory notice which does not take effect immediately or on a specified date) when:
(1) the period during which any person may refer a matter to the Tribunal is still running; or
(2) the matter has been referred to the Tribunal but has not been dealt with; or
(3) the matter has been referred to the Tribunal and dealt with but the period during which an appeal may be brought against the Tribunal's decision is still running; or
(4) such an appeal has been brought but has not been determined.
  • 28/08/2007

DEPP 2.3

Decision notices and second supervisory notices

  • 28/08/2007

Approach of decision maker

DEPP 2.3.1

handbook-guidance
If a decision maker is asked to decide whether to give a decision notice or second supervisory notice, it will:
(1) review the material before it;
(2) consider any representations made (whether written, oral or both) and any comments by FSA staff or others in respect of those representations;
(3) decide whether to give the notice and the terms of any notice given.
  • 28/08/2007

Default procedures

DEPP 2.3.2

handbook-guidance
If the FSA receives no response or representations within the period specified in a warning notice, the decision maker may regard as undisputed the allegations or matters in that notice and a decision notice will be given accordingly. A person who has received a decision notice and has not previously made any response or representations to the FSA , may nevertheless refer the FSA's decision to the Tribunal.
  • 28/08/2007

DEPP 2.3.3

handbook-guidance
If the FSA receives no response or representations within the period specified in a first supervisory notice, the FSA will not give a second supervisory notice. The outcome depends on when the relevant action took or takes effect (as stated in the notice). If the action:
(1) took effect immediately, or on a specified date which has already passed, it continues to have effect (subject to any decision on a referral to the Tribunal); or
(2) was to take effect on a specified date which is still in the future, it takes effect on that date (subject to any decision on a referral to the Tribunal); or
(3) was to take effect when the matter was no longer open for review, it takes effect when the period to make representations (or the period for referral to the Tribunal, if longer) expires, unless the matter has been referred to the Tribunal.
  • 28/08/2007

DEPP 2.3.4

handbook-guidance
In exceptional cases, the decision maker may permit representations from a person who has received a decision notice (or a second supervisory notice) or against whom action, detailed in a first supervisory notice, has taken effect, and shows on reasonable grounds that he did not receive the warning notice (or first supervisory notice), or that he had reasonable grounds for not responding within the specified period. In these circumstances, the decision maker may decide to give a further decision notice (or a written notice or a supervisory notice).
  • 28/08/2007

Further decision notice

DEPP 2.3.5

handbook-guidance
Under section 388(3) of the Act, following the giving of a decision notice but before the FSA takes action to which the decision notice relates, the FSA may give the person concerned a further decision notice relating to different action concerning the same matter. Under section 388(4) of the Act, the FSA can only do this if the person receiving the further decision notice gives its consent. In these circumstances the following procedure will apply:
(1) FSA staff will recommend to the decision maker that a further decision notice be given, either before or after obtaining the person's consent;
(2) the decision maker will consider whether the action proposed in the further decision notice is appropriate in the circumstances;
(3) if the decision maker decides that the action proposed is inappropriate, he will decide not to give the further decision notice. In this case, the original decision notice will stand and the person's rights in relation to that notice will be unaffected. If the person's consent has already been obtained, the FSA will notify the person of the decision not to give the further decision notice;
(4) if the decision maker decides that the action proposed is appropriate then, subject to the person's consent being (or having been) obtained, a further decision notice will be given;
(5) a person who had the right to refer the matter to the Tribunal under the original decision notice will have that right under the further decision notice. The time period in which the reference to the Tribunal may be made will begin from the date on which the further decision notice is given.
  • 28/08/2007

DEPP 2.3.6

handbook-guidance
For the purpose of establishing whether the person receiving the further decision notice gives its consent, the FSA will normally require consent in writing.
  • 28/08/2007

DEPP 2.4

Third party rights and access to FSA material

  • 28/08/2007

DEPP 2.4.1

handbook-guidance
Sections 393 (Third party rights) and 394 (Access to FSA material) of the Act confer additional procedural rights relating to third parties and to disclosure of FSA material. These rights apply in certain warning notice and decision notice cases referred to in section 392 of the Act (Application of sections 393 and 394). The cases in which these additional rights apply are identified in DEPP 2 Annex 1 by asterisks; these are generally cases in which the warning notice or decision notice is given on the FSA's own initiative rather than in response to an application or notification made to the FSA.
  • 28/08/2007

DEPP 2.5

Provision for certain categories of decision

  • 28/08/2007

Purpose

DEPP 2.5.1

handbook-guidance
Some of the decisions referred to in DEPP 2 Annex 1 and DEPP 2 Annex 2 share similar characteristics. For convenience, DEPP 2.5 sets out some of these and the particular features they have.
  • 28/08/2007

Different decision makers

DEPP 2.5.2

handbook-guidance
The decision to give a warning notice and a decision notice in a particular matter will often not be taken by the same decision maker. Certain types of action require that the warning notice decision be taken by FSA staff under executive procedures and the decision notice decision be taken by the RDC. Similarly, in enforcement cases the RDC might take the decision to give a warning notice, but the decision to give a decision notice could be taken by the settlement decision makers on the basis that the person concerned does not contest the action proposed (see DEPP 5).

Decisions relating to applications for authorisation or approval

DEPP 2.5.3

handbook-guidance
FSA staff under executive procedures will take the decision to give a warning notice if the FSA proposes to:
(1) refuse an application for a Part IV permission or to refuse an application to cancel a Part IV permission ;
(2) impose a limitation or a requirement which was not applied for, or specify a narrower description of regulated activity than that applied for, on the grant of a Part IV permission ;
(3) refuse an application to vary a Part IV permission , or to restrict a Part IV permission on the grant of a variation (by imposing a limitation or a requirement which was not applied for or by specifying a narrower description of regulated activity than that applied for);
(4) refuse approved person status;
(5) refuse an application for a small e-money issuer certificate (see ELM 8 (Small e-money issuers));
(6) refuse an application for variation or rescission of a requirement imposed on an incoming EEA firm.
  • 28/08/2007

DEPP 2.5.4

handbook-guidance
If no representations are made in response to a warning notice proposing the action set out at DEPP 2.5.3 G within the period specified, a decision notice will be given accordingly: see DEPP 2.3.2 G (Default procedures).
  • 28/08/2007

DEPP 2.5.5

handbook-guidance
If representations are made in response to a warning notice proposing the action set out at DEPP 2.5.3G (1), DEPP 2.5.3G (4) or DEPP 2.5.3G (5), then the RDC will take the decision to give a decision notice.
  • 28/08/2007

DEPP 2.5.6

handbook-guidance
If representations are made in response to a warning notice proposing the action set out at DEPP 2.5.3 G DEPP 2.5.3G (2), DEPP 2.5.3G (3) or DEPP 2.5.3G (6), then the RDC will take the decision to give a decision notice if the action involves a fundamental change(see DEPP 2.5.8 G) to the nature of a permission. Otherwise, the decision to give the decision notice will be taken by FSA staff under executive procedures.
  • 28/08/2007

FSA's own-initiative power

DEPP 2.5.7

handbook-guidance
The RDC will take the decision to give a supervisory notice exercising the FSA's own initiative power (by removing a regulated activity, by imposing a limitation or requirement or by specifying a narrower description of regulated activity) if the action involves a fundamental change (see DEPP 2.5.8 G) to the nature of a permission. Otherwise, the decision to give the decision notice will be taken by FSA staff under executive procedures.
  • 28/08/2007

DEPP 2.5.8

handbook-guidance
A fundamental change to the nature of a permission means:
(1) removing a type of activity or investment from the firm'spermission; or
(2) refusing an application to include a type of activity or investment; or
(3) restricting a firm from taking on new business, dealing with a particular category of client or handling client money by imposing a limitation or requirement, or refusing an application to vary or cancel such a limitation or requirement; or
(4) imposing or varying an assets requirement (as defined in section 48(3) of the Act (Prohibitions and restrictions)), or refusing an application to vary or cancel such a requirement.
  • 28/08/2007

Decisions relating to listing of securities

DEPP 2.5.9

handbook-guidance
FSA staff under executive procedures will take the following statutory notice decisions:
(1) the refusal of an application for listing of securities;
(2) the suspension of listing on the FSA's own initiative or at the request of the issuer;
(3) [deleted]
(4) the discontinuance of listing of securities at the issuer's request;
(5) the exercise of any of the powers in sections 87K or 87L of the Act in respect of a breach of any applicable provision; and
(6) [deleted]
(7) the refusal of an application by an issuer for cancellation of a suspension of listing made under section 77 of the Act.

DEPP 2.5.10

handbook-guidance
The RDC will take statutory notice decisions relating to the discontinuance of listing of securities on the FSA's own initiative.
  • 28/08/2007

DEPP 2.5.11

handbook-guidance
If securities have matured or otherwise ceased to exist the FSA will remove any reference to them from the official list. This is a purely administrative process, and not a discontinuance of listing in the sense used in Part 6 of the Act.
  • 28/08/2007

Modified procedures in collective investment scheme and certain other cases

DEPP 2.5.12

handbook-guidance
FSA staff will usually inform or discuss with the person concerned any action they contemplate before they recommend to the RDC that the FSA takes formal action. The FSA may also be invited to exercise certain powers by the persons who would be affected by the exercise of those powers. In these circumstances if the person concerned has agreed to or accepted the action proposed then the decisions referred to in DEPP 2.5.13 G will be taken by FSA staff under executive procedures rather than by the RDC.
  • 28/08/2007

DEPP 2.5.13

handbook-guidance
The decisions referred to in DEPP 2.5.12 G are:
(1) the decision to give a supervisory notice pursuant to section 259(3), (8) or 9(b) (directions on authorised unit trust schemes); section 268(3), 7(a) or 9(a) (directions in respect of recognised overseas schemes); or section 282(3), (6) or (7)(b) (directions in respect of relevant recognised schemes) of the Act;
(2) the decision to give a warning notice or decision notice pursuant to section 280(1) or (2)(a) (revocation of recognised investment scheme) of the Act;
(3) the decision to give a supervisory notice in accordance with regulation 27(3), (8) or 9(b) of the OEIC Regulations;
(4) the decision to give a warning notice or decision notice pursuant to regulation 24 or regulation 28 of the OEIC Regulations;
(5) the decision to give a direction under section 42B(1) of the Building Societies Act 1986 that a building society transfers all its engagements to one or more other building societies or that it transfers its business to an existing company (under section 94 or section 97 respectively of the Building Societies Act 1986); and
(6) the decision to give a decision notice under section 93(6) of the Building Societies Act 1986 (permission for successor society on amalgamation) where the terms of the permission have been agreed with the successor building society.
  • 28/08/2007

DEPP 2.5.14

handbook-guidance
In determining whether there is agreement to or acceptance of the action proposed, an indication by the following persons will be regarded as conclusive:
(1) in relation to an authorised unit trust, the manager and trustee;
(2) in relation to an ICVC, the directors and the depositary;
(3) in relation to a recognised scheme, the operator and, if any, the trusteeor depositary.
  • 28/08/2007

DEPP 2.5.15

handbook-guidance
A decision to give a warning notice or decision notice refusing an application for an authorisation order declaring a unit trust scheme to be an AUT or ICVC will be taken by the RDC only if the application is by an authorised fund manager who is not the operator of an existing AUT or ICVC. Otherwise, the decision to give the warning notice or decision notice will be taken by FSA staff under executive procedures.

DEPP 2.5.16

handbook-guidance
A notice under section 264(2) of the Act (notification of non-compliance with UK law) relating to a collective investment scheme constituted in another EEA State is not a warning notice, but the FSA will operate a procedure for a section 264(2) notice which will be similar to the procedure for a warning notice.

Notices under the Building Societies Act 1986 and other enactments

DEPP 2.5.17

handbook-guidance
The FSA expects to adopt a procedure in respect of notices under enactments other than the Act which is similar to that for statutory notices under the Act, but which recognises any differences in the legislative framework and requirements. DEPP 2 Annex 1 and DEPP 2 Annex 2 therefore identify notices to be given pursuant to other enactments and the relevant FSA decision maker.
  • 28/08/2007

DEPP 2.5.18

handbook-guidance
Some of the distinguishing features of notices given under enactments other than the Act are as follows:
(1) Building Societies Act 1986, section 36A: There is no right to refer a decision to issue a prohibition order under section 36A to the Tribunal. Accordingly, a decision notice under section 36A(5A) is not required to give an indication of whether any such right exists. A decision notice under section 36A(5A) may only relate to the issue of a prohibition order under section 36A. Where such a decision notice is given, no final notice is required under section 390 of the Act and the FSA may issue the order at the same time as or after giving the decision notice. For the purposes of section 391 of the Act (Publication), the decision notice is treated as if it were a final notice.
(2) Building Societies Act 1986, section 93(6): The FSA notifies the successor of the permission by giving it a decision notice. The decision notice is not preceded by the giving of a warning notice. No final notice is required under section 390 of the Act and for the purposes of section 391 of the Act (Publication), the decision notice is treated as if it were a final notice. The giving of permission is treated for the purposes of section 55 of the Act (Right to refer matters to the Tribunal) as if it were the determination of an application made by the successor under Part IV of the Act. Part IX of the Act (Hearings and appeals) accordingly applies, but with the omission of section 133(9), which would otherwise prevent the FSA from giving the permission on the terms notified in the decision notice until after any reference and appeal.
(3) Friendly Societies Act 1992, section 58A: The warning notice and decision notice must set out the terms of the direction which the FSA proposes or has decided to give and any specification of when the friendly society is to comply with it. A decision notice given under section 58A(3) must give an indication of the society's right, given by section 58A(5), to have the matter referred to the Tribunal. A decision notice under section 58A(3) may only relate to action under the same section of the Friendly Societies Act 1992 as the action proposed in the warning notice. A final notice under section 390 of the Act must set out the terms of the direction and state the date from which it takes effect. Section 392 of the Act is to be read as if it included references to a warning notice given under section 58A(1) and a decision notice given under section 58A(3).

DEPP 2 Annex 1

Warning notices and decision notices under the Act and certain other enactments

  • 28/08/2007

handbook-guidance
Note: Third party rights and access to FSA material apply to the powers listed in this Annex where indicated by an asterisk * (see DEPP 2.4)

DEPP 2 Annex 2

Supervisory notices

  • 28/08/2007

handbook-guidance

Export chapter as

DEPP 3

The nature and procedure of the RDC

DEPP 3.1

The Regulatory Decisions Committee

  • 28/08/2007

DEPP 3.1.1

handbook-guidance
The Regulatory Decisions Committee (RDC) is a committee of the FSA Board. It is part of the FSA. It exercises certain regulatory powers on behalf of the FSA and is accountable to the FSA Board for its decisions generally.
  • 28/08/2007

DEPP 3.1.2

handbook-guidance
(1) The RDC is separate from the FSA's executive management structure. Apart from its Chairman, none of the members of the RDC is an FSA employee.
(2) All members of the RDC are appointed for fixed periods by the FSA Board. The FSA Board may remove a member of the RDC, but only in the event of that member's misconduct or incapacity.
  • 28/08/2007

DEPP 3.1.3

handbook-guidance
The RDC has its own legal advisers and support staff. The RDC staff are separate from the FSA staff involved in conducting investigations and making recommendations to the RDC.
  • 28/08/2007

DEPP 3.2

The operation of the RDC

  • 28/08/2007

RDC meetings and composition of panels

DEPP 3.2.1

handbook-guidance
The RDC meets as often as necessary to discharge its functions. It may do so, in appropriate cases, in writing or by telephone or email or other electronic means. The RDC meets in private.
  • 28/08/2007

DEPP 3.2.2

handbook-guidance
The RDC may meet as a full committee, but will ordinarily meet in panels. Each meeting of the RDC will generally include:
(1) its Chairman or a Deputy Chairman (who will chair the meeting); and
(2) at least two other members.
  • 28/08/2007

DEPP 3.2.3

handbook-guidance
The composition and size of panels of the RDC may vary depending on the nature of the particular matter under consideration. In cases in which representations are made, it will be usual for the panel that is to consider the representations and decide whether to give a decision notice to include additional members of the RDC who have not previously considered the matter.
  • 28/08/2007

Conflicts of interest

DEPP 3.2.4

handbook-guidance
The RDC will seek not to invite a member to join a panel to consider a matter in which he has a potential conflict of interest.
  • 28/08/2007

DEPP 3.2.5

handbook-guidance
(1) If a member of the RDC has a potential conflict of interest in any matter in which he is asked to participate he will disclose the conflict to the RDC Office, and disclose it:
(a) in the case of the Chairman of the RDC, to the Chairman or Deputy Chairman of the FSA ; or
(b) in the case of a Deputy Chairman of the RDC, to the Chairman of the RDC, or if he is unavailable to the Chairman or Deputy Chairman of the FSA ; or
(c) in the case of any other member, to the Chairman or a Deputy Chairman of the RDC.
(2) If the person to whom a conflict has been disclosed in accordance with (1)(a) to (c) considers it reasonable and appropriate, he will require the member of the RDC to stand down from consideration of that matter. He may ask another member of the RDC to assist him in considering the potential conflict.
  • 28/08/2007

DEPP 3.2.6

handbook-guidance
The RDC Office will record and document all disclosures of potential conflicts of interest and the steps taken to manage them.
  • 28/08/2007

Procedure: general

DEPP 3.2.7

handbook-guidance
The RDC will follow the procedure described in this section, but subject to that it will conduct itself in the manner the RDC Chairman or a Deputy Chairman considers suitable in order to enable the RDC to determine fairly and expeditiously the matter which it is considering.
  • 28/08/2007

DEPP 3.2.8

handbook-guidance
Each member of the RDC present is entitled to vote on the matter under consideration. The chairman of the meeting will have a vote as a member of the RDC and will have the casting vote in a tie.
  • 28/08/2007

DEPP 3.2.9

handbook-guidance
The RDC Chairman or a Deputy Chairman may, acting alone, decide:
(1) matters relating to the arrangements for an RDC meeting, including its timing; and
(2) the composition of the panel to consider a particular matter.
  • 28/08/2007

DEPP 3.2.10

handbook-guidance
If the RDC considers it relevant to its consideration, it may ask FSA staff to explain or provide any or all of the following:
(1) additional information about the matter (which FSA staff may seek by further investigation); or
(2) further explanation of any aspect of the FSA staff recommendation or accompanying papers; or
(3) information about FSA priorities and policies (including as to the FSA's view on the law or on the correct legal interpretation of provisions of the Act).
  • 28/08/2007

DEPP 3.2.11

handbook-guidance
The RDC has no power under the Act to require persons to attend before it or provide information. It is not a tribunal and will make a decision based on all the relevant information available to it, which may include views of FSA staff about the relative quality of witness and other evidence.
  • 28/08/2007

Procedure: warning notices and first supervisory notices

DEPP 3.2.12

handbook-guidance
If FSA staff consider that action is appropriate in a matter for which the RDC is the decision maker, they will make a recommendation to the RDC that a warning notice or a supervisory notice should be given.
  • 28/08/2007

DEPP 3.2.13

handbook-guidance
In accordance with DEPP 2.2 the RDC will consider whether it is right in all the circumstances to give the statutory notice.
  • 28/08/2007

DEPP 3.2.14

handbook-guidance
If the RDC decides that the FSA should give a warning notice or a first supervisory notice:
(1) the RDC will settle the wording of the warning notice or first supervisory notice, and will ensure that the notice complies with the relevant provisions of the Act;
(2) the RDC will make any relevant statutory notice associated decisions;
(3) the RDC staff will make appropriate arrangements for the notice to be given; and
(4) the RDC staff will make appropriate arrangements for the disclosure of the substantive communications between the RDC and the FSA staff who made the recommendation on which the RDC's decision is based. This may include providing copies in electronic format.
  • 28/08/2007

Procedure: representations

DEPP 3.2.15

handbook-guidance
(1) A warning notice or a first supervisory notice will (as required by the Act) specify the time allowed for making representations. This will not be less than 28days.
(2) The FSA will also, when giving a warning notice or a first supervisory notice, specify a time within which the recipient is required to indicate whether he wishes to make oral representations.
  • 28/08/2007

DEPP 3.2.16

handbook-guidance
(1) The recipient of a warning notice or a first supervisory notice may request an extension of the time allowed for making representations. Such a request must normally be made within 14days of the notice being given.
(2) If a request is made, the Chairman or a Deputy Chairman of the RDC will decide whether to allow an extension, and, if so, how much additional time is to be allowed for making representations. In reaching his decision he may take account of any relevant comments from the FSA staff responsible for the matter.
(3) The RDC staff will notify the relevant party and the FSA staff responsible for the matter of the decision in writing.
  • 28/08/2007

DEPP 3.2.17

handbook-guidance
(1) If the recipient of a warning notice or a first supervisory notice indicates that he wishes to make oral representations, the RDC staff, in conjunction with the Chairman or a Deputy Chairman of the RDC, will fix a date or dates for a meeting at which the relevant RDC members will receive those representations.
(2) In making those arrangements the RDC staff will draw the Chairman's or Deputy Chairman's attention to any particular issues about the timing of the meeting which have been raised by the recipient of the notice or the relevant FSA staff.
  • 28/08/2007

DEPP 3.2.18

handbook-guidance
The chairman of the relevant meeting will ensure that the meeting is conducted so as to enable:
(1) the recipient of the warning notice or first supervisory notice to make representations;
(2) the relevant FSA staff to respond to those representations;
(3) the RDC members to raise with those present any points or questions about the matter (whether in response to particular representations or more generally about the matter); and
(4) the recipient of the notice to respond to points made by FSA staff or the RDC;


but the chairman may ask the recipient of the notice or FSA staff to limit their representations or response in length or to particular issues arising from the warning notice or first supervisory notice.
  • 28/08/2007

DEPP 3.2.19

handbook-guidance
The recipient of the warning notice or supervisory notice may wish to be legally represented at the meeting, but this is not a requirement.
  • 28/08/2007

DEPP 3.2.20

handbook-guidance
In appropriate cases, the chairman of a meeting for oral representations may ask those present to provide additional information in writing after the meeting. If he does so, he will specify the time within which that information is to be provided.
  • 28/08/2007

DEPP 3.2.21

handbook-guidance
The RDC will not, after the FSA has given a warning notice or a first supervisory notice, meet with or discuss the matter whilst it is still ongoing with the FSA staff responsible for the case without other relevant parties being present or otherwise having the opportunity to respond.
  • 28/08/2007

Procedure: decision notices and second supervisory notices

DEPP 3.2.22

handbook-guidance
If no representations are made in response to the warning notice or first supervisory notice, the FSA will regard as undisputed the allegations or matters set out in the notice and the default procedure will apply: see DEPP 2.3.2 G to DEPP 2.3.4 G.
  • 28/08/2007

DEPP 3.2.23

handbook-guidance
However, if representations are made, in accordance with DEPP 2.3.1 G the RDC will consider whether it is right in all the circumstances to give the decision notice or a second supervisory notice (as appropriate).
  • 28/08/2007

DEPP 3.2.24

handbook-guidance
If the RDC decides that the FSA should give a decision notice or a second supervisory notice:
(1) the RDC will settle the wording of the notice which will include a brief summary of the key representations made and how they have been dealt with, and will ensure that the notice complies with the relevant provisions of the Act;
(2) the RDC will make any relevant statutory notice associated decisions, including whether the FSA is required to give a copy of the notice to a third party; and
(3) the RDC staff will make appropriate arrangements for the notice to be given.
  • 28/08/2007

DEPP 3.2.25

handbook-guidance
If the RDC decides that the FSA should not give a decision notice or a second supervisory notice the RDC staff will notify the relevant parties (including the relevant FSA staff) in writing of that decision.
  • 28/08/2007

Discontinuance of FSA action

DEPP 3.2.26

handbook-guidance
FSA staff responsible for recommending action to the RDC will continue to assess the appropriateness of the proposed action in the light of new information or representations they receive and any material change in the facts or circumstances relating to a particular matter. It may be therefore that they decide to give a notice of discontinuance to a person to whom a warning notice or decision notice has been given. The decision to give a notice of discontinuance does not require the agreement of the RDC, but FSA staff will inform the RDC of the discontinuance of the proceedings.
  • 28/08/2007

Tribunal proceedings

DEPP 3.2.27

handbook-guidance
A decision by the RDC to give a decision notice or supervisory notice may lead to a reference to the Tribunal under the Act. The conduct of proceedings before the Tribunal is not however a matter for the RDC.
  • 28/08/2007

DEPP 3.3

Straightforward decisions

  • 28/08/2007

DEPP 3.3.1

handbook-guidance
In statutory notice cases for which the RDC is the decision-maker, the Chairman or a Deputy Chairman of the RDC may take a straightforward decision to give the statutory notice.
  • 28/08/2007

DEPP 3.3.2

handbook-guidance
The Chairman or, if he is unavailable, a Deputy Chairman will decide whether a decision is straightforward. In doing so he will have regard to all the circumstances. These may include:
(1) the significance of the decision to those who would be affected by it;
(2) its novelty in the light of stated policy and established practice;
(3) the complexity of the relevant considerations, including whether representations have been made;
(4) the range of alternative options;
(5) the extent to which the facts relating to the decision are or may be disputed.
  • 28/08/2007

DEPP 3.3.3

handbook-guidance
The RDC Chairman or a Deputy Chairman may, notwithstanding the fact that a decision is straightforward, take the decision to give the statutory notice jointly with one or more other members of the RDC if he considers it appropriate to do so.
  • 28/08/2007

DEPP 3.4

Urgent supervisory notice cases

  • 28/08/2007

DEPP 3.4.1

handbook-guidance
In urgent supervisory notice cases for which the RDC is the decision maker, the decision to give the supervisory notice may be taken by the RDC Chairman or, if he is unavailable, a Deputy Chairman, and, if it is practicable, one or more other RDC members.
  • 28/08/2007

DEPP 3.4.2

handbook-guidance
The RDC Chairman or Deputy Chairman will take such a decision only if satisfied that the action proposed should occur before it is practicable to convene an RDC panel.
  • 28/08/2007

DEPP 3.4.3

handbook-guidance
In an exceptionally urgent case the decision to give a supervisory notice may be taken by a member of the FSA's executive of at least director of division level if:
(1) FSA staff consider that the action should be taken before a recommendation to the Chairman or a Deputy Chairman of the RDC can be made; and
(2) an urgent decision on the proposed action is necessary to protect the interests of consumers.
  • 28/08/2007

DEPP 3.4.4

handbook-guidance
In the circumstances described in DEPP 3.4.3 G, the FSA considers that it may be necessary for an FSA director of division to take the decision to give the supervisory notice even if he has been involved in establishing the evidence on which the decision is based, as permitted by section 395(3) of the Act. Where practicable, however, FSA staff will seek to ensure that the FSA director has not been so involved.
  • 28/08/2007

Export chapter as

DEPP 4

Decisions by
FSA staff under executive procedures

DEPP 4.1

Executive decision maker

  • 28/08/2007

Who takes the decision

DEPP 4.1.1

handbook-guidance
All statutory notice decisions under executive procedures will be taken either by a senior staff committee or by an individual FSA staff member.
  • 28/08/2007

DEPP 4.1.2

handbook-guidance
In either case, the decision will be taken by FSA staff who have not been directly involved in establishing the evidence on which the decision is based, except in accordance with section 395(3) of the Act.
  • 28/08/2007

Decisions by senior staff committee

DEPP 4.1.3

handbook-guidance
The FSA's senior executive committee will from time to time determine that particular categories of statutory notice decision to be taken under executive procedures will be taken by a senior staff committee.
  • 28/08/2007

DEPP 4.1.4

handbook-guidance
A senior staff committee will consist of such FSA staff members as the FSA's senior executive committee may from time to time determine. The FSA's senior executive committee may authorise the chairman of a senior staff committee to select its other members. A senior staff committee is accountable for its decisions to the FSA's senior executive committee and, through it, to the FSA Board.
  • 28/08/2007

DEPP 4.1.5

handbook-guidance
A senior staff committee may operate through standing or specific sub-committees to consider particular decisions or classes of decision, for which accountability will lie through the committee. Each meeting of a senior staff committee, or sub-committee, will include:
(1) an individual with authority to act as its chairman; and
(2) at least two other members.
  • 28/08/2007

DEPP 4.1.6

handbook-guidance
A senior staff committee will operate on the basis of a recommendation from an FSA staff member of at least the level of associate, and with the benefit of legal advice from an FSA staff member of at least the level of associate.
  • 28/08/2007

Decisions by individual FSA staff members

DEPP 4.1.7

handbook-guidance
Statutory notice decisions to be taken under executive procedures, and not falling within the responsibility of a senior staff committee, will be taken by an individual FSA staff member. The decision will be:
(1) made by an executive director of the FSA Board or his delegate (who will be of at least the level of associate);
(2) on the recommendation of an FSA staff member of at least the level of associate; and
(3) with the benefit of legal advice from an FSA staff member of at least the level of associate.
  • 28/08/2007

DEPP 4.1.8

handbook-guidance
The individual who takes a decision under executive procedures is accountable to the FSA Board directly (if an executive director) or otherwise through line management responsible for the decision concerned.
  • 28/08/2007

DEPP 4.1.9

handbook-guidance
An FSA staff member who considers that a statutory notice decision should be taken above his own level is free to refer that decision to a more senior level. If an FSA staff member consults another staff member about a decision, the decision remains the independent decision of the FSA staff member who consults his colleague, unless it is agreed that the decision should instead be taken by the colleague, and the colleague has the delegated authority to do so.
  • 28/08/2007

DEPP 4.1.10

handbook-guidance
If an individual responsible for a decision under executive procedures (or a more senior FSA staff member with responsibilities in relation to the decision concerned) considers that it warrants collective consideration, the individual may:
(1) take the decision himself, following consultation with other FSA staff members, as above; or
(2) refer it to a senior staff committee, which will take the decision itself.
  • 28/08/2007

Conflicts of interest

DEPP 4.1.11

handbook-guidance
(1) FSA staff are required by their contract of employment to comply with a code of conduct which imposes strict rules to cover the handling of conflicts of interest which may arise from personal interests or associations. FSA staff subject to a conflict of interest must declare that interest to the person to whom they are immediately responsible for a decision.
(2) If a member of a senior staff committee has a potential conflict of interest in any matter in which he is asked to participate he will disclose the conflict to the secretariat of the senior staff committee, and disclose it:
(a) in the case of the chairman of the senior staff committee, to a member of the FSA's senior executive committee or, if the person with the conflict is the chairman of the FSA's senior executive committee, to the Chairman of the FSA;
(b) in the case of the deputy chairman of the senior staff committee, to the chairman of the committee, or if he is unavailable, to a member of the FSA's senior executive committee;
(c) in the case of any other member to the chairman or deputy chairman of the senior staff committee.
(3) If the person to whom the conflict has been disclosed in accordance with DEPP 4.1.11 G (2) considers it reasonable and appropriate, he will require the member of the senior staff committee to stand down from consideration of the matter.
  • 28/08/2007

DEPP 4.1.12

handbook-guidance
The secretariat to the senior staff committee will record and document all disclosures of potential conflicts of interest and the steps taken to manage them.
  • 28/08/2007

Procedure

DEPP 4.1.13

handbook-guidance
The procedure for taking decisions under executive procedures will generally be less formal and structured than that for decisions by the RDC. Broadly, however, FSA staff responsible for taking statutory notice decisions under executive procedures will follow a procedure similar to that described at DEPP 3.2.7 G to DEPP 3.2.27 G for the RDC except that:
(1) in a case where the decision will be taken by a senior staff committee:
(a) the chairman or deputy chairman of the senior staff committee will perform the role of the Chairman of the RDC; and
(b) the secretariat to the senior staff committee will perform the role of the RDC staff;
(2) in a case where the decision will be taken by individual members of FSA staff, the distinction between the role of the RDC, its Chairman and the RDC staff has no application;
(3) the FSA staff responsible for taking the statutory notice decision may be advised by legal advisers who have also advised FSA staff recommending action by the FSA;
(4) the FSA will not normally disclose the communications between the FSA staff recommending that action be taken and those responsible for the decision to give the statutory notice unless the FSA has stated publicly that it will adopt a practice of disclosing such communications, or a class of communications, in respect of particular categories of decision taken by FSA staff under executive procedures; and
(5) DEPP 3.2.11 G and DEPP 3.2.21 G will not apply.
  • 28/08/2007

DEPP 4.2

Urgent statutory notice cases

  • 28/08/2007

DEPP 4.2.1

handbook-guidance
If FSA staff recommend that action be taken and they consider that the decision falls within the responsibility of a senior staff committee:
(1) in general the FSA staff's recommendation will go before the senior staff committee;
(2) in urgent statutory notice cases for which a senior staff committee is responsible, the decision to give the statutory notice may be taken by the chairman or, if he is unavailable, a deputy chairman of the senior staff committee, and, if it is practicable, one or more other members of the committee;
(3) the chairman or deputy chairman of the senior staff committee will take such a decision only if satisfied that the action proposed should occur before it is practicable to convene a meeting of the senior staff committee;
(4) in an exceptionally urgent statutory notice case, if in the FSA staff's opinion:
(a) the action should be taken before a recommendation to the chairman or a deputy chairman of the senior staff committee could be made; and
(b) an urgent decision on the proposed action is necessary to protect the interests of consumers;
the decision may be taken by a member of the FSA's executive of at least director of division level or, in the case of a senior staff committee which reports directly to the FSA's senior executive committee, by a member of that committee.

DEPP 4.2.2

handbook-guidance
In the circumstances described in DEPP 4.2.1 G (4) the FSA considers that it may be necessary for an FSA director of division or member of a senior staff committee to take the decision to give a supervisory notice even if he has been involved in establishing the evidence on which the decision is based, as permitted by section 395(3) of the Act. Where practicable, however, FSA staff will seek to ensure that the FSA director or committee member has not been so involved.
  • 28/08/2007

Export chapter as

DEPP 5

Settlement decision procedure

DEPP 5.1

Settlement decision makers

  • 28/08/2007

Introduction

DEPP 5.1.1

handbook-guidance
(1) A person subject to enforcement action may agree to a financial penalty or other outcome rather than contest formal action by the FSA.
(2) The fact that he does so will not usually obviate the need for a statutory notice recording the FSA's decision to take that action. Where, however, the person subject to enforcement action agrees not to contest the content of a proposed statutory notice, the decision to give that statutory notice will be taken by senior FSA staff.
(3) The decision will be taken jointly by two members of the FSA's executive of at least director of division level (the "settlement decision makers").
(4) One of the directors taking the decision will usually be, but need not be, the director of Enforcement. (In exceptional cases, the director of Enforcement may have been directly involved in establishing the evidence on which the decision is based and would not therefore be able to participate (see section 395(2) of the Act).)
(5) "Statutory notice" for these purposes:
(a) means any statutory notice the giving of which would otherwise require a decision by the RDC;
(b) includes a statutory notice associated decision.

Procedure: general

DEPP 5.1.2

handbook-guidance
A person who is or may be subject to enforcement action may wish to discuss the proposed action with FSA staff through settlement discussions.
  • 28/08/2007

DEPP 5.1.3

handbook-guidance
Settlement discussions may take place at any time during the enforcement process if both parties agree. This might be before the giving of a warning notice, before a decision notice, or even after referral of the matter to the Tribunal. But the FSA would not normally agree to detailed settlement discussions until it has a sufficient understanding of the nature and gravity of the suspected misconduct or issue to make a reasonable assessment of the appropriate outcome. Settlement after a decision notice will be rare.
  • 28/08/2007

DEPP 5.1.4

handbook-guidance
FSA staff and the person concerned may agree that neither the FSA nor the person concerned would seek to rely against the other on any admissions or statements made in the course of their settlement discussions if the matter is considered subsequently by the RDC or the Tribunal.
  • 28/08/2007

Procedure: participation of decision makers in discussions

DEPP 5.1.5

handbook-guidance
(1) The settlement decision makers may, but need not, participate in the discussions exploring possible settlement.
(2) If the settlement decision makers have not been involved in the discussions, but an agreement has been reached, they may ask to meet the relevant FSA staff or the person concerned in order to assist in the consideration of the proposed settlement.
  • 28/08/2007

DEPP 5.1.6

handbook-guidance
The terms of any proposed settlement:
(1) will be put in writing and be agreed by FSA staff and the person concerned;
(2) may refer to a draft of the proposed statutory notices setting out the facts of the matter and the FSA's conclusions;
(3) may, depending upon the stage in the enforcement process at which agreement is reached, include an agreement by the person concerned to:
(a) waive and not exercise any rights under sections 387 (Warning notices) and 394 (Access to Authority material) of the Act to notice of, or access to, material relied upon by the FSA and any secondary material which might undermine the FSA decision to give the statutory notice;
(b) waive and not exercise any rights under section 387 of the Act or otherwise to make representations to the RDC in respect of a warning notice or first supervisory notice;
(c) not object to the giving of a decision notice before the expiry of the 28 day period after the giving of a warning notice specified under section 387 of the Act;
(d) not dispute with the FSA the facts and matters set out in a warning notice, decision notice, supervisory notice or final notice and to waive and not exercise any right under section 208 (Decision notice) of the Act to refer the matter to the Tribunal.
  • 28/08/2007

DEPP 5.1.7

handbook-guidance
The settlement decision makers may:
(1) accept the proposed settlement by deciding to give a statutory notice based on the terms of the settlement; or
(2) decline the proposed settlement;


whether or not the settlement decision makers have met with the relevant FSA staff or the person concerned.
  • 28/08/2007

DEPP 5.1.8

handbook-guidance
(1) Where the settlement decision makers decline to issue a statutory notice despite the proposed settlement, they may invite FSA staff and the person concerned to enter into further discussions to try to achieve an outcome the settlement decision makers would be prepared to endorse.
(2) However, if the proposed action by the FSA has been submitted to the RDC for consideration, it will be for the RDC to decide:
(a) whether to extend the period for representations in response to a warning notice or first supervisory notice; or
(b) if representations have been made in response to a warning notice or first supervisory notice, whether to proceed to give a decision notice or second supervisory notice.
  • 28/08/2007

Settlement by mediation

DEPP 5.1.9

handbook-guidance
The FSA and other parties may agree to mediation as a way of facilitating settlement in appropriate cases.
  • 28/08/2007

Third party rights

DEPP 5.1.10

handbook-guidance
(1) DEPP 2.4 sets out the FSA's approach to giving third parties copies of statutory notices pursuant to section 393 (Third party rights) of the Act.
(2) The decision to give a warning notice or a decision notice to a third party is a statutory notice associated decision.
(3) In cases therefore where the decision to give a warning notice or decision notice is taken by settlement decision makers, those decision makers will decide whether a copy of the notice should be given to a third party in accordance with section 393 of the Act. Any representations made by the third party in response to a warning notice will be considered by the settlement decision makers
  • 28/08/2007

Export chapter as

DEPP 6

Penalties

DEPP 6.1

Introduction

  • 28/08/2007

DEPP 6.1.1

handbook-guidance
DEPP 6 includes the FSA's statement of policy with respect to the imposition and amount of penalties under the Act, as required by sections 69(1), 93(1), 124(1), and 210(1) of the Act.

DEPP 6.1.2

handbook-guidance
The principal purpose of imposing a financial penalty or issuing a public censure is to promote high standards of regulatory and/or market conduct by deterring persons who have committed breaches from committing further breaches, helping to deter other persons from committing similar breaches, and demonstrating generally the benefits of compliant behaviour. Financial penalties and public censures are therefore tools that the FSA may employ to help it to achieve its regulatory objectives .
  • 28/08/2007

DEPP 6.2

Deciding whether to take action

  • 28/08/2007

DEPP 6.2.1

handbook-guidance
The FSA will consider the full circumstances of each case when determining whether or not to take action for a financial penalty or public censure. Set out below is a list of factors that may be relevant for this purpose. The list is not exhaustive: not all of these factors may be applicable in a particular case, and there may be other factors, not listed, that are relevant.
(1) The nature, seriousness and impact of the suspected breach, including:
(a) whether the breach was deliberate or reckless;
(b) the duration and frequency of the breach;
(c) the amount of any benefit gained or loss avoided as a result of the breach;
(d) whether the breach reveals serious or systemic weaknesses of the management systems or internal controls relating to all or part of a person's business;
(e) the impact or potential impact of the breach on the orderliness of markets including whether confidence in those markets has been damaged or put at risk;
(f) the loss or risk of loss caused to consumers or other market users;
(g) the nature and extent of any financial crime facilitated, occasioned or otherwise attributable to the breach; and
(h) whether there are a number of smaller issues, which individually may not justify disciplinary action, but which do so when taken collectively.
(2) The conduct of the person after the breach, including the following:
(a) how quickly, effectively and completely the person brought the breach to the attention of the FSA or another relevant regulatory authority;
(b) the degree of co-operation the person showed during the investigation of the breach;
(c) any remedial steps the person has taken in respect of the breach;
(d) the likelihood that the same type of breach (whether on the part of the person under investigation or others) will recur if no action is taken;
(e) 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 or an RIE); and
(f) the nature and extent of any false or inaccurate information given by the person and whether the information appears to have been given in an attempt to knowingly mislead the FSA .
(3) The previous disciplinary record and compliance history of the person including:
(a) whether the FSA (or any previous regulator) has taken any previous disciplinary action resulting in adverse findings against the person;
(b) whether the person has previously undertaken not to do a particular act or engage in particular behaviour;
(c) whether the FSA (or any previous regulator) has previously taken protective action in respect of a firm, using its own initiative powers, by means of a variation of a Part IV permission or otherwise, or has previously requested the firm to take remedial action, and the extent to which such action has been taken; and
(d) the general compliance history of the person, including whether the FSA (or any previous regulator) has previously issued the person with a private warning.
(4) FSA guidance and other published materials:

The FSA will not take action against a person for behaviour that it considers to be in line with guidance, other materials published by the FSA in support of the Handbook or FSA -confirmed Industry Guidance which were current at the time of the behaviour in question. (The manner in which guidance and other published materials may otherwise be relevant to an enforcement case is described in EG 2.)
(5) Action taken by the FSA in previous similar cases.
(6) Action taken by other domestic or international regulatory authorities:

Where other regulatory authorities propose to take action in respect of the breach which is under consideration by the FSA , or one similar to it, the FSA will consider whether the other authority's action would be adequate to address the FSA's concerns, or whether it would be appropriate for the FSA to take its own action.
  • 28/08/2007

DEPP 6.2.2

handbook-guidance
When deciding whether to take action for market abuse or requiring or encouraging, the FSA may consider the following additional factors:
(1) The degree of sophistication of the users of the market in question, the size and liquidity of the market, and the susceptibility of the market to market abuse.
(2) The impact, having regard to the nature of the behaviour, that any financial penalty or public censure may have on the financial markets or on the interests of consumers:
(a) a penalty may show that high standards of market conduct are being enforced in the financial markets, and may bolster market confidence;
(b) a penalty may protect the interests of consumers by deterring future market abuse and improving standards of conduct in a market;
(c) in the context of a takeover bid, the FSA may consider that the impact of the use of its powers is likely to have an adverse effect on the timing or outcome of that bid, and therefore it would not be in the interests of financial markets or consumers to take action for market abuse during the takeover bid. If the FSA considers that the proposed use of its powers may have that effect, it will consult the Takeover Panel and give due weight to its views.
  • 28/08/2007

DEPP 6.2.2A

handbook-guidance
The factors to which the FSA will have regard when deciding whether to impose a penalty under regulation 34 of the RCB Regulations are set out in RCB 4.2.3 G.
  • 11/12/2008

Discipline for breaches of FSA rules on systems and controls against money laundering

DEPP 6.2.3

handbook-guidance
The FSA's rules on systems and controls against money laundering are set out in SYSC 3.2 and SYSC 6.3. The FSA , when considering whether to take action for a financial penalty or censure in respect of a breach of those rules, will have regard to whether a firm has followed relevant provisions in the Guidance for the UK financial sector issued by the Joint Money Laundering Steering Group.
  • 28/08/2007

Action against approved persons under section 66 of the Act

DEPP 6.2.4

handbook-guidance
The primary responsibility for ensuring compliance with a firm's regulatory obligations rests with the firm itself. However, the FSA may take disciplinary action against an approved person where there is evidence of personal culpability on the part of that approved person. Personal culpability arises where the behaviour was deliberate or where the approved person's standard of behaviour was below that which would be reasonable in all the circumstances at the time of the conduct concerned.
  • 28/08/2007

DEPP 6.2.5

handbook-guidance
In some cases it may not be appropriate to take disciplinary measures against a firm for the actions of an approved person (an example might be where the firm can show that it took all reasonable steps to prevent the breach). In other cases, it may be appropriate for the FSA to take action against both the firm and the approved person. For example, a firm may have breached the rule requiring it to take reasonable care to establish and maintain such systems and controls as are appropriate to its business (SYSC 3.1.1 R or SYSC 4.1.10 R), and an approved person may have taken advantage of those deficiencies to front run orders or misappropriate assets.
  • 28/08/2007

DEPP 6.2.6

handbook-guidance
In addition to the general factors outlined in DEPP 6.2.1 G, there are some additional considerations that may be relevant when deciding whether to take action against an approved person pursuant to section 66 of the Act. This list of those considerations is non-exhaustive. Not all considerations below may be relevant in every case, and there may be other considerations, not listed, that are relevant.
(1) The approved person's position and responsibilities. The FSA may take into account the responsibility of those exercising significant influence functions in the firm for the conduct of the firm. The more senior the approved person responsible for the misconduct, the more seriously the FSA is likely to view the misconduct, and therefore the more likely it is to take action against the approved person.
(2) Whether disciplinary action against the firm rather than the approved person would be a more appropriate regulatory response.
(3) Whether disciplinary action would be a proportionate response to the nature and seriousness of the breach by the approved person.
  • 28/08/2007

DEPP 6.2.7

handbook-guidance
The FSA will not discipline approved persons on the basis of vicarious liability (that is, holding them responsible for the acts of others), provided appropriate delegation and supervision has taken place (see APER 4.6.13 G and APER 4.6.14 G). In particular, disciplinary action will not be taken against an approved person performing a significant influence function simply because a regulatory failure has occurred in an area of business for which he is responsible. The FSA will consider that an approved person performing a significant influence function may have breached Statements of Principle 5 to 7 only if his conduct was below the standard which would be reasonable in all the circumstances at the time of the conduct concerned (see also APER 3.1.8 G).
  • 28/08/2007

DEPP 6.2.8

handbook-guidance
An approved person will not be in breach if he has exercised due and reasonable care when assessing information, has reached a reasonable conclusion and has acted on it.
  • 28/08/2007

DEPP 6.2.9

handbook-guidance
Where disciplinary action is taken against an approved person the onus will be on the FSA to show that the approved person has been guilty of misconduct.
  • 28/08/2007

Action against directors, former directors and persons discharging managerial responsibilities for breaches under Part VI of the Act

DEPP 6.2.10

handbook-guidance
The primary responsibility for ensuring compliance with Part VI of the Act, the Part 6 rules, the prospectus rules or a provision otherwise made in accordance with the Prospectus Directive or a requirement imposed under such provision rests with the persons identified in section 91(1) and section 91(1A) (Penalties for breach of Part 6 rules) of the Act respectively. Normally therefore, any disciplinary action taken by the FSA for contraventions of these obligations will in the first instance be against those persons.
  • 28/08/2007

DEPP 6.2.11

handbook-guidance
However, in the case of a contravention by a person referred to in section 91(1)(a) or section 91(1)(b)(i) or section 91(1A) of the Act ("P"), where the FSA considers that another person who was at the material time a director of P was knowingly concerned in the contravention, the FSA may take disciplinary action against that person. In circumstances where the FSA does not consider it appropriate to seek a disciplinary sanction against P (notwithstanding a breach of relevant requirements by such person), the FSA may nonetheless seek a disciplinary sanction against any other person who was at the material time a director of P and was knowingly concerned in the contravention.
  • 28/08/2007

DEPP 6.2.12

handbook-guidance
Persons discharging managerial responsibilities within an issuer and their connected persons, who have requested or approved the admission of a financial instrument to trading on a regulated market, and connected persons have their own responsibilities under the disclosure rules, as set out in DTR 3, for which they are primarily responsible. Accordingly, disciplinary action for a breach of the disclosure rules will not necessarily involve the issuer.
[Note: In paragraph 6.2.12, 'connected person' has the meaning in relation to a person discharging managerial responsibilities within an issuer attributed to it in subsection (5) of the definition of 'connected person' in the Handbook Glossary.]
  • 28/08/2007

DEPP 6.2.13

handbook-guidance
In deciding whether to take action, the FSA will consider the full circumstances of each case. Factors that may be relevant for this purpose include, but are not limited to, the factors at DEPP 6.2.1 G.
  • 28/08/2007

Discipline for breaches of the Principles for Businesses

DEPP 6.2.14

handbook-guidance
The Principles are set out in PRIN 2.1.1 R. The Principles are a general statement of the fundamental obligations of firms under the regulatory system. The Principles derive their authority from the FSA's rule-making powers set out in section 138(General rule-making power) of the Act. A breach of a Principle will make a firm liable to disciplinary action. Where the FSA considers this is appropriate, it will discipline a firm on the basis of the Principles alone.
  • 28/08/2007

DEPP 6.2.15

handbook-guidance
In determining whether a Principle has been breached, it is necessary to look to the standard of conduct required by the Principle in question at the time. Under each of the Principles, the onus will be on the FSA to show that a firm has been at fault in some way.
  • 28/08/2007

Discipline for breaches of the Listing Principles

DEPP 6.2.16

handbook-guidance
The Listing Principles are set out in LR 7. The Listing Principles are a general statement of the fundamental obligations of listed companies. The Listing Principles derive their authority from the FSA's rule making powers set out in section 73A(1) (Part 6 Rules) of the Act. A breach of a Listing Principle will make a listed company liable to disciplinary action by the FSA .
  • 28/08/2007

DEPP 6.2.17

handbook-guidance
In determining whether a Listing Principle has been broken, it is necessary to look to the standard of conduct required by the Listing Principle in question. Under each of the Listing Principles, the onus will be on the FSA to show that a listed company has been at fault in some way. This requirement will differ depending upon the Listing Principle.
  • 28/08/2007

DEPP 6.2.18

handbook-guidance
In certain cases, it may be appropriate to discipline a listed company on the basis of the Listing Principles alone. Examples include the following:
(1) where there is no detailed listing rule which prohibits the behaviour in question, but the behaviour clearly contravenes a Listing Principle;
(2) where a listed company has committed a number of breaches of detailed rules which individually may not merit disciplinary action, but the cumulative effect of which indicates the breach of a Listing Principle.
  • 28/08/2007

Action involving other regulatory authorities or enforcement agencies

DEPP 6.2.19

handbook-guidance
Some types of breach may potentially result not only in action by the FSA , but also action by other domestic or overseas regulatory authorities or enforcement agencies.
  • 28/08/2007

DEPP 6.2.20

handbook-guidance
When deciding how to proceed in such cases, the FSA will examine the circumstances of the case, and consider, in the light of the relevant investigation, disciplinary and enforcement powers, whether it is appropriate for the FSA or another authority to take action to address the breach. The FSA will have regard to all the circumstances of the case including whether the other authority has adequate powers to address the breach in question.
  • 28/08/2007

DEPP 6.2.21

handbook-guidance
In some cases, it may be appropriate for both the FSA and another authority to be involved, and for both to take action in a particular case arising from the same facts. For example, a breach of RIE rules may be so serious as to justify the FSA varying or cancelling the firm's Part IV permission, or withdrawing approval from approved persons, as well as action taken by the RIE. In such cases, the FSA will work with the relevant authority to ensure that cases are dealt with efficiently and fairly, under operating arrangements in place (if any) between the FSA and the relevant authority.
  • 28/08/2007

DEPP 6.2.22

handbook-guidance
In relation to behaviour which may have happened or be happening in the context of a takeover bid, the FSA will refer to the Takeover Panel and give due weight to its views. Where the Takeover Code has procedures for complaint about any behaviour, the FSA expects parties to exhaust those procedures. The FSA will not, save in exceptional circumstances, take action under any of section 123 (FSA'spower to impose penalties), section 129 (Power of court to impose penalties), section 381 (Injunctions), sections 383 or 384 (Restitution) in respect of behaviour to which the Takeover Code is relevant before the conclusion of the procedures available under the Takeover Code.

DEPP 6.2.23

handbook-guidance
The FSA will not take action against a person over behaviour which (a) conforms with the Takeover Code or rules of an RIE and (b) falls within the terms of any provision of the Code of Market Conduct which states that behaviour so conforming does not amount to market abuse. The FSA will seek the Takeover Panel's or relevant RIE's views on whether behaviour complies with the Takeover Code or RIE rules and will attach considerable weight to its views.
  • 28/08/2007

DEPP 6.2.24

handbook-guidance
If any of the circumstances in DEPP 6.2.26 G apply, and the FSA considers that the use of its disciplinary powers under section 123 or section 129, or of its injunctive powers under section 381 or of its powers relating to restitution under section 383 or 384 is appropriate, it will not take action during an offer to which the Takeover Code applies except in the circumstances set out in DEPP 6.2.27 G.
  • 28/08/2007

DEPP 6.2.25

handbook-guidance
In any case where the FSA considers that the use of its powers under any of sections 123, 129, 381, 383 or 384 of the Act may be appropriate, if that use may affect the timetable or outcome of a takeover bid or where it is appropriate in the context of any exercise by the Takeover Panel of its powers and authority, the FSA will consult the Takeover Panel before using any of those powers.
  • 28/08/2007

DEPP 6.2.26

handbook-guidance
Where the behaviour of a person which amounts to market abuse is behaviour to which the Takeover Code is relevant, the use of the Takeover Panel's powers will often be sufficient to address the relevant concerns. In cases where this is not so, the FSA will need to consider whether it is appropriate to use any of its own powers under the market abuse regime. The principal circumstances in which the FSA is likely to consider such exercise are:
(1) where the behaviour falls within sections 118(2), 118(3) or 118(4) of the Act;
(2) where the FSA's approach in previous similar cases (which may have happened otherwise than in the context of a takeover bid) suggests that a financial penalty should be imposed;
(3) where the behaviour extends to securities or a class of securities which may be outside the Takeover Panel's jurisdiction;
(4) where the behaviour threatens or has threatened the stability of the financial system; and
(5) where for any other reason the Takeover Panel asks the FSA to consider the use of any of its powers referred to in DEPP 6.2.22 G.
[Note: In this section, 'securities' has the same meaning given in subsection (1) of the definition of 'security' in the Handbook Glossary]
  • 28/08/2007

DEPP 6.2.27

handbook-guidance
The exceptional circumstances in which the FSA will consider the use of powers during a takeover bid are listed in DEPP 6.2.26G (1), DEPP 6.2.26G (3) and DEPP 6.2.26G (4), and, depending on the circumstances, DEPP 6.2.26G (5).
  • 28/08/2007

DEPP 6.3

Penalties for market abuse

  • 28/08/2007

DEPP 6.3.1

handbook-guidance
Section 123(2) of the Act states that the FSA may not impose a penalty on a person if there are reasonable grounds to be satisfied that:
(1) the person concerned believed, on reasonable grounds, that his behaviour did not amount to market abuse or requiring or encouraging; or
(2) the person concerned took all reasonable precautions and exercised all due diligence to avoid engaging in market abuse or requiring or encouraging.
  • 28/08/2007

DEPP 6.3.2

handbook-guidance
The factors which the FSA may take into account when deciding whether either of the two conditions in DEPP 6.3.1 G are met include, but are not limited to:
(1) whether, and if so to what extent, the behaviour in question was or was not analogous to behaviour described in the Code of Market Conduct (see MAR 1) as amounting or not amounting to market abuse or requiring or encouraging;
(2) whether the FSA has published any guidance or other materials on the behaviour in question and if so, the extent to which the person sought to follow that guidance or take account of those materials (see the Reader's Guide to the Handbook regarding the status of guidance.) The FSA will consider the nature and accessibility of any guidance or other published materials when deciding whether it is relevant in this context and, if so, what weight it should be given;
(3) whether, and if so to what extent, the behaviour complied with the rules of any relevant prescribed market or any other relevant market or other regulatory requirements (including the Takeover Code) or any relevant codes of conduct or best practice;
(4) the level of knowledge, skill and experience to be expected of the person concerned;
(5) whether, and if so to what extent, the person can demonstrate that the behaviour was engaged in for a legitimate purpose and in a proper way;
(6) whether, and if so to what extent, the person followed internal consultation and escalation procedures in relation to the behaviour (for example, did the person discuss the behaviour with internal line management and/or internal legal or compliance departments);
(7) whether, and if so the extent to which, the person sought any appropriate expert legal or other expert professional advice and followed that advice; and
(8) whether, and if so to what extent, the person sought advice from the market authorities of any relevant prescribed market or, where relevant, consulted the Takeover Panel, and followed the advice received.
  • 28/08/2007

DEPP 6.4

Financial penalty or public censure

  • 28/08/2007

DEPP 6.4.1

handbook-guidance
The FSA will consider all the relevant circumstances of the case when deciding whether to impose a penalty or issue a public censure. As such, the factors set out in DEPP 6.4.2 G are not exhaustive. Not all of the factors may be relevant in a particular case and there may be other factors, not listed, that are relevant.
  • 28/08/2007

DEPP 6.4.2

handbook-guidance
The criteria for determining whether it is appropriate to issue a public censure rather than impose a financial penalty include those factors that the FSA will consider in determining the amount of penalty set out in DEPP 6.5 A to DEPP 6.5 D. Some particular considerations that may be relevant when the FSA determines whether to issue a public censure rather than impose a financial penalty are:
(1) whether or not deterrence may be effectively achieved by issuing a public censure;
(2) if the person has made a profit or avoided a loss as a result of the breach, this may be a factor in favour of a financial penalty, on the basis that a person should not be permitted to benefit from its breach;
(3) if the breach is more serious in nature or degree, this may be a factor in favour of a financial penalty, on the basis that the sanction should reflect the seriousness of the breach; other things being equal, the more serious the breach, the more likely the FSA is to impose a financial penalty;
(4) if the person has brought the breach to the attention of the FSA , this may be a factor in favour of a public censure, depending upon the nature and seriousness of the breach;
(5) if the person has admitted the breach and provides full and immediate co-operation to the FSA , and takes steps to ensure that those who have suffered loss due to the breach are fully compensated for those losses, this may be a factor in favour of a public censure, rather than a financial penalty, depending upon the nature and seriousness of the breach;
(6) if the person has a poor disciplinary record or compliance history (for example, where the FSA has previously brought disciplinary action resulting in adverse findings in relation to the same or similar behaviour), this may be a factor in favour of a financial penalty, on the basis that it may be particularly important to deter future cases;
(7) the FSA's approach in similar previous cases: the FSA will seek to achieve a consistent approach to its decisions on whether to impose a financial penalty or issue a public censure; and
(8) the impact on the person concerned. It would only be in an exceptional case that the FSA would be prepared to agree to issue a public censure rather than impose a financial penalty if a financial penalty would otherwise be the appropriate sanction. Examples of such exceptional cases could include:
(a) where the application of the FSA's policy on serious financial hardship (set out in DEPP 6.5D) results in a financial penalty being reduced to zero;
(b) where there is verifiable evidence that the person would be unable to meet other regulatory requirements, particularly financial resource requirements, if the FSA imposed a financial penalty at an appropriate level; or
(c) in Part VI cases in which the FSA may impose a financial penalty, where there is the likelihood of a severe adverse impact on a person's shareholders or a consequential impact on market confidence or market stability if a financial penalty was imposed. However, this does not exclude the imposition of a financial penalty even though this may have an impact on a person's shareholders.

DEPP 6.5

Determining the appropriate level of financial penalty

  • 28/08/2007

DEPP 6.5.1

handbook-guidance
For the purpose of DEPP 6.5 to DEPP 6.5D and DEPP 6.6.2 G, the term "firm" means firms and those unauthorised persons who are not individuals.

DEPP 6.5.2

handbook-guidance
The FSA's penalty-setting regime is based on the following principles:
(1) Disgorgement - a firm or individual should not benefit from any breach;
(2) Discipline - a firm or individual should be penalised for wrongdoing; and
(3) Deterrence - any penalty imposed should deter the firm or individual who committed the breach, and others, from committing further or similar breaches.

DEPP 6.5.3

handbook-guidance
  1. (1) 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:
    1. (a) Step 1: the removal of any financial benefit derived directly from the breach;
    2. (b) Step 2: the determination of a figure which reflects the seriousness of the breach;
    3. (c) Step 3: an adjustment made to the Step 2 figure to take account of any aggravating and mitigating circumstances;
    4. (d) 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
    5. (e) 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.
  2. (2) 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).
  3. (3) The FSA recognises that a penalty must be proportionate to the breach. The FSA 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 FSA 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.
  4. (4) 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.
  5. (5) The FSA 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.
  6. (6) Part III (Penalties and Fees) of Schedule 1 to the Act specifically provides that the FSA may 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.

DEPP 6.5A

The five steps for penalties imposed on firms

  • 06/03/2010

Step 1 - disgorgement

DEPP 6.5A.1

handbook-guidance
(1) The FSA will seek to deprive a firm of the financial benefit derived directly from the breach (which may include the profit made or loss avoided) where it is practicable to quantify this. The FSA will ordinarily also charge interest on the benefit.
(2) Where the success of a firm's entire business model is dependent on breaching FSA rules or other requirements of the regulatory system and the breach is at the core of the firm's regulated activities, the FSA will seek to deprive the firm of all the financial benefit derived from such activities. Where a firm agrees to carry out a redress programme to compensate those who have suffered loss as a result of the breach, or where the FSA decides to impose a redress programme, the FSA will take this into consideration. In such cases the final penalty might not include a disgorgement element, or the disgorgement element might be reduced.

[Note: For the purposes of DEPP 6.5A, "firm" has the special meaning given to it in DEPP 6.5.1 G]
  • 06/03/2010

Step 2 - the seriousness of the breach

DEPP 6.5A.2

handbook-guidance
(1) The FSA will determine a figure that reflects the seriousness of the breach. In many cases, the amount of revenue generated by a firm from a particular product line or business area is indicative of the harm or potential harm that its breach may cause, and in such cases the FSA will determine a figure which will be based on a percentage of the firm's revenue from the relevant products or business areas. The FSA also believes that the amount of revenue generated by a firm from a particular product or business area is relevant in terms of the size of the financial penalty necessary to act as a credible deterrent. However, the FSA recognises that there may be cases where revenue is not an appropriate indicator of the harm or potential harm that a firm's breach may cause, and in those cases the FSA will use an appropriate alternative.
(2) In those cases where the FSA considers that revenue is an appropriate indicator of the harm or potential harm that a firm's breach may cause, the FSA will determine a figure which will be based on a percentage of the firm's "relevant revenue". "Relevant revenue" will be the revenue derived by the firm during the period of the breach from the products or business areas to which the breach relates. Where the breach lasted less than 12 months, or was a one-off event, the relevant revenue will be that derived by the firm in the 12 months preceding the end of the breach. Where the firm was in existence for less than 12 months, its relevant revenue will be calculated on a pro rata basis to the equivalent of 12 months' relevant revenue.
(3) Having determined the relevant revenue, the FSA will then decide on the percentage of that revenue which will form the basis of the penalty. In making this determination the FSA will consider the seriousness of the breach and choose a percentage between 0% and 20%. This range is divided into five fixed levels which represent, on a sliding scale, the seriousness of the breach. The more serious the breach, the higher the level. For penalties imposed on firms there are the following five levels:
(a) level 1 - 0%;
(b) level 2 - 5%;
(c) level 3 - 10%;
(d) level 4 - 15%; and
(e) level 5 - 20%.
(4) The FSA will assess the seriousness of a breach to determine which level is most appropriate to the case.
(5) In deciding which level is most appropriate to a case involving a firm, the FSA will take into account various factors, which will usually fall into the following four categories:
(a) factors relating to the impact of the breach;
(b) factors relating to the nature of the breach;
(c) factors tending to show whether the breach was deliberate; and
(d) factors tending to show whether the breach was reckless.
(6) Factors relating to the impact of a breach committed by a firm include:
(a) the level of benefit gained or loss avoided, or intended to be gained or avoided, by the firm from the breach, either directly or indirectly;
(b) the loss or risk of loss, as a whole, caused to consumers, investors or other market users in general;
(c) the loss or risk of loss caused to individual consumers, investors or other market users;
(d) whether the breach had an effect on particularly vulnerable people, whether intentionally or otherwise;
(e) the inconvenience or distress caused to consumers; and
(f) whether the breach had an adverse effect on markets and, if so, how serious that effect was. This may include having regard to whether the orderliness of, or confidence in, the markets in question has been damaged or put at risk.
(7) Factors relating to the nature of a breach by a firm include:
(a) the nature of the rules, requirements or provisions breached;
(b) the frequency of the breach;
(c) whether the breach revealed serious or systemic weaknesses in the firm's procedures or in the management systems or internal controls relating to all or part of the firm's business;
(d) whether the firm's senior management were aware of the breach;
(e) the nature and extent of any financial crime facilitated, occasioned or otherwise attributable to the breach;
(f) the scope for any potential financial crime to be facilitated, occasioned or otherwise occur as a result of the breach;
(g) whether the firm failed to conduct its business with integrity;
(h) whether the firm, in committing the breach, took any steps to comply with FSArules, and the adequacy of those steps; and
(i) in the context of contraventions of Part VI of the Act, the extent to which the behaviour which constitutes the contravention departs from current market practice.
(8) Factors tending to show the breach was deliberate include:
(a) the breach was intentional, in that the firm's senior management, or a responsible individual, intended or foresaw that the likely or actual consequences of their actions or inaction would result in a breach;
(b) the firm's senior management, or a responsible individual, knew that their actions were not in accordance with the firm's internal procedures;
(c) the firm's senior management, or a responsible individual, sought to conceal their misconduct;
(d) the firm's senior management, or a responsible individual, committed the breach in such a way as to avoid or reduce the risk that the breach would be discovered;
(e) the firm's senior management, or a responsible individual, were influenced to commit the breach by the belief that it would be difficult to detect;
(f) the breach was repeated; and
(g) in the context of a contravention of any rule or requirement imposed by or under Part VI of the Act, the firm obtained reasonable professional advice before the contravention occurred and failed to follow that advice. Obtaining professional advice does not remove a person's responsibility for compliance with applicable rules and requirements.
(9) Factors tending to show the breach was reckless include:
(a) the firm's senior management, or a responsible individual, appreciated there was a risk that their actions or inaction could result in a breach and failed adequately to mitigate that risk; and
(b) the firm's senior management, or a responsible individual, were aware there was a risk that their actions or inaction could result in a breach but failed to check if they were acting in accordance with the firm's internal procedures.
(10) Additional factors to which the FSA will have regard when determining the appropriate level of financial penalty to be imposed under regulation 34 of the RCB Regulations are set out in RCB 4.2.5 G.
(11) In following this approach factors which are likely to be considered 'level 4 factors' or 'level 5 factors' include:
(a) the breach caused a significant loss or risk of loss to individual consumers, investors or other market users;
(b) the breach revealed serious or systemic weaknesses in the firm's procedures or in the management systems or internal controls relating to all or part of the firm's business;
(c) financial crime was facilitated, occasioned or otherwise attributable to the breach;
(d) the breach created a significant risk that financial crime would be facilitated, occasioned or otherwise occur;
(e) the firm failed to conduct its business with integrity; and
(f) the breach was committed deliberately or recklessly.
(12) Factors which are likely to be considered 'level 1 factors', 'level 2 factors' or 'level 3 factors' include:
(a) little, or no, profits were made or losses avoided as a result of the breach, either directly or indirectly;
(b) there was no or little loss or risk of loss to consumers, investors or other market users individually and in general;
(c) there was no, or limited, actual or potential effect on the orderliness of, or confidence in, markets as a result of the breach;
(d) there is no evidence that the breach indicates a widespread problem or weakness at the firm; and
(e) the breach was committed negligently or inadvertently.
(13) In those cases where revenue is not an appropriate indicator of the harm or potential harm that a firm's breach may cause, the FSA will adopt a similar approach, and so will determine the appropriate Step 2 amount for a particular breach by taking into account relevant factors, including those listed above. In these cases the FSA may not use the percentage levels that are applied in those cases in which revenue is an appropriate indicator of the harm or potential harm that a firm's breach may cause.
  • 06/03/2010

Step 3 - mitigating and aggravating factors

DEPP 6.5A.3

handbook-guidance
(1) The FSA may increase or decrease the amount of the financial penalty arrived at after Step 2, but not including any amount to be disgorged as set out in Step 1, to take into account factors which aggravate or mitigate the breach. Any such adjustments will be made by way of a percentage adjustment to the figure determined at Step 2.
(2) The following list of factors may have the effect of aggravating or mitigating the breach:
(a) the conduct of the firm in bringing (or failing to bring) quickly, effectively and completely the breach to the FSA's attention (or the attention of other regulatory authorities, where relevant);
(b) the degree of cooperation the firm showed during the investigation of the breach by the FSA , or any other regulatory authority allowed to share information with the FSA ;
(c) where the firm's senior management were aware of the breach or of the potential for a breach, whether they took any steps to stop the breach, and when these steps were taken;
(d) any remedial steps taken since the breach was identified, including whether these were taken on the firm's own initiative or that of the FSA or another regulatory authority; for example, identifying whether consumers or investors or other market users suffered loss and compensating them where they have; correcting any misleading statement or impression; taking disciplinary action against staff involved (if appropriate); and taking steps to ensure that similar problems cannot arise in the future. The size and resources of the firm may be relevant to assessing the reasonableness of the steps taken;
(e) whether the firm has arranged its resources in such a way as to allow or avoid disgorgement and/or payment of a financial penalty;
(f) whether the firm had previously been told about the FSA's concerns in relation to the issue, either by means of a private warning or in supervisory correspondence;
(g) whether the firm had previously undertaken not to perform a particular act or engage in particular behaviour;
(h) whether the firm concerned has complied with any requirements or rulings of another regulatory authority relating to the breach;
(i) the previous disciplinary record and general compliance history of the firm;
(j) action taken against the firm by other domestic or international regulatory authorities that is relevant to the breach in question;
(k) whether FSA guidance or other published materials had already raised relevant concerns, and the nature and accessibility of such materials; and
(l) whether the FSA publicly called for an improvement in standards in relation to the behaviour constituting the breach or similar behaviour before or during the occurrence of the breach.
  • 06/03/2010

Step 4 - adjustment for deterrence

DEPP 6.5A.4

handbook-guidance
(1) If the FSA considers the figure arrived at after Step 3 is insufficient to deter the firm who committed the breach, or others, from committing further or similar breaches then the FSA may increase the penalty. Circumstances where the FSA may do this include:
(a) where the FSA considers the absolute value of the penalty too small in relation to the breach to meet its objective of credible deterrence;
(b) where previous FSA action in respect of similar breaches has failed to improve industry standards. This may include similar breaches relating to different products (for example, action for mis-selling or claims handling failures in respect of 'x' product may be relevant to a case for mis-selling or claims handling failures in respect of 'y' product);
(c) where the FSA considers it is likely that similar breaches will be committed by the firm or by other firms in the future in the absence of such an increase to the penalty; and
(d) where the FSA considers that the likelihood of the detection of such a breach is low.
  • 06/03/2010

Step 5 - settlement discount

DEPP 6.5A.5

handbook-guidance
The FSA and the firm 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, DEPP 6.7 provides that the amount of the financial penalty which might otherwise have been payable will be reduced to reflect the stage at which the FSA and the firm concerned reached an agreement. The settlement discount does not apply to the disgorgement of any benefit calculated at Step 1.
  • 06/03/2010

DEPP 6.5B

The five steps for penalties imposed on individuals in non-market abuse cases

  • 06/03/2010

Step 1 - disgorgement

DEPP 6.5B.1

handbook-guidance
The FSA will seek to deprive an individual of the financial benefit derived directly from the breach (which may include the profit made or loss avoided) where it is practicable to quantify this. The FSA will ordinarily also charge interest on the benefit. Where the success of a firm's entire business model is dependent on breaching FSA rules or other requirements of the regulatory system and the individual's breach is at the core of the firm's regulated activities, the FSA will seek to deprive the individual of all the financial benefit he has derived from such activities.



[Note: For the purposes of DEPP 6.5B, "firm" has the special meaning given to it in DEPP 6.5.1 G.]
  • 06/03/2010

Step 2 - the seriousness of the breach

DEPP 6.5B.2

handbook-guidance
(1) The FSA will determine a figure which will be based on a percentage of an individual's "relevant income". "Relevant income" will be the gross amount of all benefits received by the individual from the employment in connection with which the breach occurred (the "relevant employment"), and for the period of the breach. In determining an individual's relevant income, "benefits" includes, but is not limited to, salary, bonus, pension contributions, share options and share schemes; and "employment" includes, but is not limited to, employment as an adviser, director, partner or contractor.
(2) Where the breach lasted less than 12 months, or was a one-off event, the relevant income will be that earned by the individual in the 12 months preceding the end of the breach. Where the individual was in the relevant employment for less than 12 months, his relevant income will be calculated on a pro rata basis to the equivalent of 12 months' relevant income.
(3) This approach reflects the FSA's view that an individual receives remuneration commensurate with his responsibilities, and so it is reasonable to base the amount of penalty for failure to discharge his duties properly on his remuneration. The FSA also believes that the extent of the financial benefit earned by an individual is relevant in terms of the size of the financial penalty necessary to act as a credible deterrent. The FSA recognises that in some cases an individual may be approved for only a small part of the work he carries out on a day-to-day basis. However, in these circumstances the FSA still considers it appropriate to base the relevant income figure on all of the benefit that an individual gains from the relevant employment, even if his employment is not totally related to a controlled function.
(4) Having determined the relevant income the FSA will then decide on the percentage of that income which will form the basis of the penalty. In making this determination the FSA will consider the seriousness of the breach and choose a percentage between 0% and 40%.
(5) This range is divided into five fixed levels which reflect, on a sliding scale, the seriousness of the breach. The more serious the breach, the higher the level. For penalties imposed on individuals there are the following five levels:
(a) level 1 - 0%;
(b) level 2 - 10%;
(c) level 3 - 20%;
(d) level 4 - 30%; and
(e) level 5 - 40%.
(6) The FSA will assess the seriousness of a breach to determine which level is most appropriate to the case.
(7) In deciding which level is most appropriate to a case against an individual, the FSA will take into account various factors which will usually fall into the following four categories:
(a) factors relating to the impact of the breach;
(b) factors relating to the nature of the breach;
(c) factors tending to show whether the breach was deliberate; and
(d) factors tending to show whether the breach was reckless.
(8) Factors relating to the impact of a breach committed by an individual include:
(a) the level of benefit gained or loss avoided, or intended to be gained or avoided, by the individual from the breach, either directly or indirectly;
(b) the loss or risk of loss, as a whole, caused to consumers, investors or other market users in general;
(c) the loss or risk of loss caused to individual consumers, investors or other market users;
(d) whether the breach had an effect on particularly vulnerable people, whether intentionally or otherwise;
(e) the inconvenience or distress caused to consumers; and
(f) whether the breach had an adverse effect on markets and, if so, how serious that effect was. This may include having regard to whether the orderliness of, or confidence in, the markets in question has been damaged or put at risk.
(9) Factors relating to the nature of a breach by an individual include:
(a) the nature of the rules, requirements or provisions breached;
(b) the frequency of the breach;
(c) the nature and extent of any financial crime facilitated, occasioned or otherwise attributable to the breach;
(d) the scope for any potential financial crime to be facilitated, occasioned or otherwise occur as a result of the breach;
(e) whether the individual failed to act with integrity;
(f) whether the individual abused a position of trust;
(g) whether the individual committed a breach of any professional code of conduct;
(h) whether the individual caused or encouraged other individuals to commit breaches;
(i) whether the individual held a prominent position within the industry;
(j) whether the individual is an experienced industry professional;
(k) whether the individual held a senior position with the firm;
(l) the extent of the responsibility of the individual for the product or business areas affected by the breach, and for the particular matter that was the subject of the breach;
(m) whether the individual acted under duress;
(n) whether the individual took any steps to comply with FSA rules, and the adequacy of those steps; and
(o) in the context of contraventions of Part VI of the Act, the extent to which the behaviour which constitutes the contravention departs from current market practice.
(10) Factors tending to show the breach was deliberate include:
(a) the breach was intentional, in that the individual intended or foresaw that the likely or actual consequences of his actions or inaction would result in a breach;
(b) the individual intended to benefit financially from the breach, either directly or indirectly;
(c) the individual knew that his actions were not in accordance with his firm's internal procedures;
(d) the individual sought to conceal his misconduct;
(e) the individual committed the breach in such a way as to avoid or reduce the risk that the breach would be discovered;
(f) the individual was influenced to commit the breach by the belief that it would be difficult to detect;
(g) the individual knowingly took decisions relating to the breach beyond his field of competence; and
(h) the individual's actions were repeated.
(11) Factors tending to show the breach was reckless include:
(a) the individual appreciated there was a risk that his actions or inaction could result in a breach and failed adequately to mitigate that risk; and
(b) the individual was aware there was a risk that his actions or inaction could result in a breach but failed to check if he was acting in accordance with internal procedures.
(12) In following this approach factors which are likely to be considered 'level 4 factors' or 'level 5 factors' include:
(a) the breach caused a significant loss or risk of loss to individual consumers, investors or other market users;
(b) financial crime was facilitated, occasioned or otherwise attributable to the breach;
(c) the breach created a significant risk that financial crime would be facilitated, occasioned or otherwise occur;
(d) the individual failed to act with integrity;
(e) the individual abused a position of trust;
(f) the individual held a prominent position within the industry; and
(g) the breach was committed deliberately or recklessly.
(13) Factors which are likely to be considered 'level 1 factors', 'level 2 factors' or 'level 3 factors' include:
(a) little, or no, profits were made or losses avoided as a result of the breach, either directly or indirectly;
(b) there was no or little loss or risk of loss to consumers, investors or other market users individually and in general;
(c) there was no, or limited, actual or potential effect on the orderliness of, or confidence in, markets as a result of the breach; and
(d) the breach was committed negligently or inadvertently.

Step 3 - mitigating and aggravating factors

DEPP 6.5B.3

handbook-guidance
(1) The FSA may increase or decrease the amount of the financial penalty arrived at after Step 2, but not including any amount to be disgorged as set out in Step 1, to take into account factors which aggravate or mitigate the breach. Any such adjustments will be made by way of a percentage adjustment to the figure determined at Step 2.
(2) The following list of factors may have the effect of aggravating or mitigating the breach:
(a) the conduct of the individual in bringing (or failing to bring) quickly, effectively and completely the breach to the FSA's attention (or the attention of other regulatory authorities, where relevant);
(b) the degree of cooperation the individual showed during the investigation of the breach by the FSA , or any other regulatory authority allowed to share information with the FSA ;
(c) whether the individual took any steps to stop the breach, and when these steps were taken;
(d) any remedial steps taken since the breach was identified, including whether these were taken on the individual's own initiative or that of the FSA or another regulatory authority;
(e) whether the individual has arranged his resources in such a way as to allow or avoid disgorgement and/or payment of a financial penalty;
(f) whether the individual had previously been told about the FSA's concerns in relation to the issue, either by means of a private warning or in supervisory correspondence;
(g) whether the individual had previously undertaken not to perform a particular act or engage in particular behaviour;
(h) whether the individual has complied with any requirements or rulings of another regulatory authority relating to the breach;
(i) the previous disciplinary record and general compliance history of the individual;
(j) action taken against the individual by other domestic or international regulatory authorities that is relevant to the breach in question;
(k) whether FSA guidance or other published materials had already raised relevant concerns, and the nature and accessibility of such materials;
(l) whether the FSA publicly called for an improvement in standards in relation to the behaviour constituting the breach or similar behaviour before or during the occurrence of the breach; and
(m) whether the individual agreed to undertake training subsequent to the breach.

Step 4 - adjustment for deterrence

DEPP 6.5B.4

handbook-guidance
(1) If the FSA considers the figure arrived at after Step 3 is insufficient to deter the individual who committed the breach, or others, from committing further or similar breaches then the FSA may increase the penalty. Circumstances where the FSA may do this include:
(a) where the FSA considers the absolute value of the penalty too small in relation to the breach to meet its objective of credible deterrence;
(b) where previous FSA action in respect of similar breaches has failed to improve industry standards. This may include similar breaches relating to different products (for example, action for mis-selling or claims handling failures in respect of 'x' product may be relevant to a case for mis-selling or claims handling failures in respect of 'y' product);
(c) where the FSA considers it is likely that similar breaches will be committed by the individual or by other individuals in the future;
(d) where the FSA considers that the likelihood of the detection of such a breach is low; and
(e) where a penalty based on an individual's income may not act as a deterrent, for example, if an individual has a small or zero income but owns assets of high value.
  • 06/03/2010

Step 5 - settlement discount

DEPP 6.5B.5

handbook-guidance
The FSA and the individual 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, DEPP 6.7 provides that the amount of the financial penalty which might otherwise have been payable will be reduced to reflect the stage at which the FSA and the individual concerned reached an agreement. The settlement discount does not apply to the disgorgement of any benefit calculated at Step 1.
  • 06/03/2010

DEPP 6.5C

The five steps for penalties imposed on individuals in market abuse cases

  • 06/03/2010

Step 1 - disgorgement

DEPP 6.5C.1

handbook-guidance
The FSA will seek to deprive an individual of the financial benefit derived as a direct result of the market abuse (which may include the profit made or loss avoided) where it is practicable to quantify this. The FSA will ordinarily also charge interest on the benefit.
  • 06/03/2010

Step 2 - the seriousness of the market abuse

DEPP 6.5C.2

handbook-guidance
  1. (1) The FSA will determine a figure dependent on the seriousness of the market abuse and whether or not it was referable to the individual's employment. This reflects the FSA's view that where an individual has been put into a position where he can commit market abuse because of his employment the fine imposed should reflect this by reference to the gross amount of all benefits derived from that employment.
  2. (2) In cases where the market abuse was referable to the individual's employment, the figure for the purpose of Step 2 will be the greater of:
    1. (a) a figure based on a percentage of the individual's "relevant income". The percentage of relevant income which will apply is explained in paragraphs (6) and (8) to (16) below;
    2. (b) a multiple of the profit made or loss avoided by the individual for his own benefit, or for the benefit of other individuals where the individual has been instrumental in achieving that benefit, as a direct result of the market abuse (the "profit multiple"). The profit multiple which will apply is explained in paragraphs (6) and (8) to (16) below; and
    3. (c) for market abuse cases which the FSA assesses to be seriousness level 4 or 5, £100,000. How the FSA will assess the seriousness level of the market abuse is explained in paragraphs (9) to (16) below. The FSA usually expects to assess market abuse committed deliberately as seriousness level 4 or 5.
  3. (3) In cases where the market abuse was not referable to the individual's employment, the figure for the purpose of Step 2 will be the greater of:
    1. (a) a multiple of the profit made or loss avoided by the individual for his own benefit, or for the benefit of other individuals where the individual has been instrumental in achieving that benefit, as a direct result of the market abuse (the "profit multiple"). The profit multiple which will apply is explained in paragraphs (7) to (16) below; and
    2. (b) for market abuse cases which the FSA assesses to be seriousness level 4 or 5, £100,000. How the FSA will assess the seriousness level of the market abuse is explained in paragraphs (9) to (16) below. The FSA usually expects to assess market abuse committed deliberately as seriousness level 4 or 5.
  4. (4) An individual's "relevant income" will be the gross amount of all benefits received by the individual from the employment in connection with which the market abuse occurred (the "relevant employment") for the period of the market abuse. In determining an individual's relevant income, "benefits" includes, but is not limited to, salary, bonus, pension contributions, share options and share schemes; and "employment" includes, but is not limited to, employment as an adviser, director, partner or contractor.
  5. (5) Where the market abuse lasted less than 12 months, or was a one-off event, the relevant income will be that earned by the individual in the 12 months preceding the final market abuse. Where the individual was in the relevant employment for less than 12 months, his relevant income will be calculated on a pro rata basis to the equivalent of 12 months' relevant income.
  6. (6) In cases where the market abuse was referable to the individual's employment:
    1. (a) the FSA will determine the percentage of relevant income which will apply by considering the seriousness of the market abuse and choosing a percentage between 0% and 40%; and
    2. (b) the FSA will determine the profit multiple which will apply by considering the seriousness of the market abuse and choosing a multiple between 0 and 4.
  7. (7) In cases where the market abuse was not referable to the individual's employment the FSA will determine the profit multiple which will apply by considering the seriousness of the market abuse and choosing a multiple between 0 and 4.
  8. (8) The percentage range (where the market abuse was referable to the individual's employment) and profit multiple range (in all cases) are divided into five fixed levels which reflect, on a sliding scale, the seriousness of the market abuse. The more serious the market abuse, the higher the level. For penalties imposed on individuals for market abuse there are the following five levels (the percentage figures only apply where the market abuse was referable to the individual's employment):
    1. (a) level 1 - 0%, profit multiple of 0;
    2. (b) level 2 - 10%, profit multiple of 1;
    3. (c) level 3 - 20%, profit multiple of 2;
    4. (d) level 4 - 30%, profit multiple of 3; and
    5. (e) level 5 - 40%, profit multiple of 4.
  9. (9) The FSA will assess the seriousness of the market abuse to determine which level is most appropriate to the case.
  10. (10) In deciding which level is most appropriate to a market abuse case, the FSA will take into account various factors which will usually fall into the following four categories:
    1. (a) factors relating to the impact of the market abuse;
    2. (b) factors relating to the nature of the market abuse;
    3. (c) factors tending to show whether the market abuse was deliberate; and
    4. (d) factors tending to show whether the market abuse was reckless.
  11. (11) Factors relating to the impact of the market abuse include:
    1. (a) the level of benefit gained or loss avoided, or intended to be gained or avoided, by the individual from the market abuse, either directly or indirectly;
    2. (b) whether the market abuse had an adverse effect on markets and, if so, how serious that effect was. This may include having regard to whether the orderliness of, or confidence in, the markets in question has been damaged or put at risk; and
    3. (c) whether the market abuse had a significant impact on the price of shares or other investments.
  12. (12) Factors relating to the nature of the market abuse include:
    1. (a) the frequency of the market abuse;
    2. (b) whether the individual abused a position of trust;
    3. (c) whether the individual caused or encouraged other individuals to commit market abuse;
    4. (d) whether the individual has a prominent position in the market;
    5. (e) whether the individual is an experienced industry professional;
    6. (f) whether the individual held a senior position with the firm; and
    7. (g) whether the individual acted under duress.
  13. (13) Factors tending to show the market abuse was deliberate include:
    1. (a) the market abuse was intentional, in that the individual intended or foresaw that the likely or actual consequences of his actions would result in market abuse;
    2. (b) the individual intended to benefit financially from the market abuse, either directly or indirectly;
    3. (c) the individual knew that his actions were not in accordance with exchange rules, share dealing rules and/or the firm's internal procedures;
    4. (d) the individual sought to conceal his misconduct;
    5. (e) the individual committed the market abuse in such a way as to avoid or reduce the risk that the market abuse would be discovered;
    6. (f) the individual was influenced to commit the market abuse by the belief that it would be difficult to detect;
    7. (g) the individual's actions were repeated;
    8. (h) for market abuse falling within section 118(2) of the Act, the individual knew or recognised that the information on which the dealing was based was inside information; and
    9. (i) for market abuse falling within section 118(4) of the Act, the individual's behaviour was based on information which he knew or recognised was not generally available to those using the market, and the individual regarded the information as relevant when deciding the terms on which transactions in qualifying investments should be effected.
  14. (14) Factors tending to show the market abuse was reckless include:
    1. (a) the individual appreciated there was a risk that his actions could result in market abuse and failed adequately to mitigate that risk; and
    2. (b) the individual was aware there was a risk that his actions could result in market abuse but failed to check if he was acting in accordance with internal procedures.
  15. (15) In following this approach factors which are likely to be considered 'level 4 factors' or 'level 5 factors' include:
    1. (a) the level of benefit gained or loss avoided, or intended to be gained or avoided, directly by the individual from the market abuse was significant;
    2. (b) the market abuse had a serious adverse effect on the orderliness of, or confidence in, markets;
    3. (c) the market abuse was committed on multiple occasions;
    4. (d) the individual breached a position of trust;
    5. (e) the individual has a prominent position in the market; and
    6. (f) the market abuse was committed deliberately or recklessly.
  16. (16) In following this approach factors which are likely to be considered 'level 1 factors', 'level 2 factors' or 'level 3 factors' include:
    1. (a) little, or no, profits were made or losses avoided as a result of the market abuse, either directly or indirectly;
    2. (b) there was no, or limited, actual or potential effect on the orderliness of, or confidence in, markets as a result of the market abuse; and
    3. (c) the market abuse was committed negligently or inadvertently.

[Note: For the purposes of DEPP 6.5C, "firm" has the special meaning given to it in DEPP 6.5.1 G.]

  • 06/03/2010

Step 3 - mitigating and aggravating factors

DEPP 6.5C.3

handbook-guidance
(1) The FSA may increase or decrease the amount of the financial penalty arrived at after Step 2, but not including any amount to be disgorged as set out in Step 1, to take into account factors which aggravate or mitigate the market abuse. Any such adjustments will be made by way of a percentage adjustment to the figure determined at Step 2.
(2) The following list of factors may have the effect of aggravating or mitigating the market abuse:
(a) the conduct of the individual in bringing (or failing to bring) quickly, effectively and completely the market abuse to the FSA's attention (or the attention of other regulatory authorities, where relevant);
(b) the degree of cooperation the individual showed during the investigation of the market abuse by the FSA , or any other regulatory authority allowed to share information with the FSA ;
(c) whether the individual assists the FSA in action taken against other individuals for market abuse and/or in criminal proceedings;
(d) whether the individual has arranged his resources in such a way as to allow or avoid disgorgement and/or payment of a financial penalty;
(e) whether the individual had previously been told about the FSA's concerns in relation to the issue, either by means of a private warning or in supervisory correspondence;
(f) the previous disciplinary record and general compliance history of the individual;
(g) action taken against the individual by other domestic or international regulatory authorities that is relevant to the market abuse in question;
(h) whether FSA guidance or other published materials had already raised relevant concerns, and the nature and accessibility of such materials; and
(i) whether the individual agreed to undertake training subsequent to the market abuse.
  • 06/03/2010

Step 4 - adjustment for deterrence

DEPP 6.5C.4

handbook-guidance
(1) If the FSA considers the figure arrived at after Step 3 is insufficient to deter the individual who committed the market abuse, or others, from committing further or similar abuse then the FSA may increase the penalty. Circumstances where the FSA may do this include:
(a) where the FSA considers the absolute value of the penalty too small in relation to the market abuse to meet its objective of credible deterrence;
(b) where previous FSA action in respect of similar market abuse has failed to improve industry standards; and
(c) where the penalty may not act as a deterrent in light of the size of the individual's income or net assets.
  • 06/03/2010

Step 5 - settlement discount

DEPP 6.5C.5

handbook-guidance
The FSA and the individual 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, DEPP 6.7 provides that the amount of the financial penalty which might otherwise have been payable will be reduced to reflect the stage at which the FSA and the individual concerned reached an agreement. The settlement discount does not apply to the disgorgement of any benefit calculated at Step 1.
  • 06/03/2010

DEPP 6.5D

Serious financial hardship

  • 06/03/2010

DEPP 6.5D.1

handbook-guidance
(1) The FSA's approach to determining penalties described in DEPP 6.5 to DEPP 6.5C is intended to ensure that financial penalties are proportionate to the breach. The FSA recognises that penalties may affect persons differently, and that the FSA should consider whether a reduction in the proposed penalty is appropriate if the penalty would cause the subject of enforcement action serious financial hardship.
(2) Where an individual or firm claims that payment of the penalty proposed by the FSA will cause them serious financial hardship, the FSA will consider whether to reduce the proposed penalty only if:
(a) the individual or firm provides verifiable evidence that payment of the penalty will cause them serious financial hardship; and
(b) the individual or firm provides full, frank and timely disclosure of the verifiable evidence, and cooperates fully in answering any questions asked by the FSA about their financial position.
(3) The onus is on the individual or firm to satisfy the FSA that payment of the penalty will cause them serious financial hardship.
[Note: For the purposes of DEPP 6.5D, "firm" has the special meaning given to it in DEPP 6.5.1 G.]
  • 06/03/2010

Individuals

DEPP 6.5D.2

handbook-guidance
(1) In assessing whether a penalty would cause an individual serious financial hardship, the FSA will consider the individual's ability to pay the penalty over a reasonable period (normally no greater than three years). The FSA's starting point is that an individual will suffer serious financial hardship only if during that period his net annual income will fall below £14,000 and his capital will fall below £16,000 as a result of payment of the penalty. Unless the FSA believes that both the individual's income and capital will fall below these respective thresholds as a result of payment of the penalty, the FSA is unlikely to be satisfied that the penalty will result in serious financial hardship.
(2) The FSA will consider all relevant circumstances in determining whether the income and capital threshold levels should be increased in a particular case.
(3) The FSA will consider agreeing to payment of the penalty by instalments where the individual requires time to realise his assets, for example by waiting for payment of a salary or by selling property.
(4) For the purposes of considering whether an individual will suffer serious financial hardship, the FSA will consider as capital anything that could provide the individual with a source of income, including savings, property (including personal possessions), investments and land. The FSA will normally consider as capital the equity that an individual has in the home in which he lives, but will consider any representations by the individual about this; for example, as to the exceptionally severe impact a sale of the property might have upon other occupants of the property or the impracticability of re-mortgaging or selling the property within a reasonable period.
(5) The FSA may also consider the extent to which the individual has access to other means of financial support in determining whether he is able to pay the penalty without being caused serious financial hardship.
(6) Where a penalty is reduced it will be reduced to an amount which the individual can pay without going below the threshold levels that apply in that case. If an individual has no income, any reduction in the penalty will be to an amount that the individual can pay without going below the capital threshold.
(7) There may be cases where, even though the individual has satisfied the FSA that payment of the financial penalty would cause him serious financial hardship, the FSA considers the breach to be so serious that it is not appropriate to reduce the penalty. The FSA will consider all the circumstances of the case in determining whether this course of action is appropriate, including whether:
(a) the individual directly derived a financial benefit from the breach and, if so, the extent of that financial benefit;
(b) the individual acted fraudulently or dishonestly with a view to personal gain;
(c) previous FSA action in respect of similar breaches has failed to improve industry standards; or
(d) the individual has spent money or dissipated assets in anticipation of FSA or other enforcement action with a view to frustrating or limiting the impact of action taken by the FSA or other authorities.
  • 06/03/2010

Prohibition orders and withdrawal of approval

DEPP 6.5D.3

handbook-guidance
In cases against individuals, including market abuse cases, the FSA may make a prohibition order under section 56 of the Act or withdraw an individual's approval under section 63 of the Act, as well as impose a financial penalty. Such action by the FSA reflects the FSA's assessment of the individual's fitness to perform regulated activity or suitability for a particular role, and does not affect the FSA's assessment of the appropriate financial penalty in relation to a breach. However, the fact that the FSA has made a prohibition order against an individual or withdrawn his approval, as a result of which the individual may have less earning potential, may be relevant in assessing whether the penalty will cause the individual serious financial hardship.
  • 06/03/2010

Firms

DEPP 6.5D.4

handbook-guidance
(1) The FSA will consider reducing the amount of a penalty if a firm will suffer serious financial hardship as a result of having to pay the entire penalty. In deciding whether it is appropriate to reduce the penalty, the FSA will take into consideration the firm's financial circumstances, including whether the penalty would render the firm insolvent or threaten the firm's solvency. The FSA will also take into account its regulatory objectives, for example in situations where consumers would be harmed or market confidence would suffer, the FSA may consider it appropriate to reduce a penalty in order to allow a firm to continue in business and/or pay redress.
(2) There may be cases where, even though the firm has satisfied the FSA that payment of the financial penalty would cause it serious financial hardship, the FSA considers the breach to be so serious that it is not appropriate to reduce the penalty. The FSA will consider all the circumstances of the case in determining whether this course of action is appropriate, including whether:
(a) the firm directly derived a financial benefit from the breach and, if so, the extent of that financial benefit;
(b) the firm acted fraudulently or dishonestly in order to benefit financially;
(c) previous FSA action in respect of similar breaches has failed to improve industry standards; or
(d) the firm has spent money or dissipated assets in anticipation of FSA or other enforcement action with a view to frustrating or limiting the impact of action taken by the FSA or other authorities.
  • 06/03/2010

Transfers of assets

DEPP 6.5D.5

handbook-guidance
Where the FSA considers that, following commencement of an FSA investigation, an individual or firm has reduced their solvency in order to reduce the amount of any disgorgement or financial penalty payable, for example by transferring assets to third parties, the FSA will normally take account of those assets when determining whether the individual or firm would suffer serious financial hardship as a result of the disgorgement and financial penalty.
  • 06/03/2010

DEPP 6.6

Financial penalties for late and incomplete submission of reports

  • 28/08/2007

DEPP 6.6.1

handbook-guidance
(1) The FSA attaches considerable importance to the timely submission by firms of reports. This is because the information that they contain is essential to the FSA's assessment of whether a firm is complying with the requirements and standards of the regulatory system and to the FSA's understanding of that firm's business.
(2) DEPP 6.6.1 G to DEPP 6.6.5 G set out the FSA's policy in relation to financial penalties for late submission of reports and is in addition to the FSA's policy relating to financial penalties as set out in DEPP 6.5 to DEPP 6.5D.

DEPP 6.6.2

handbook-guidance
In addition to the factors considered in Step 2 for cases against firms (DEPP 6.5A) and cases against individuals (DEPP 6.5B), the following considerations are relevant.
(1) In general, the FSA's approach to disciplinary action arising from the late submission of a report will depend upon the length of time after the due date that the report in question is submitted.
(2) If the person concerned is an individual, it is open to him to make representations to the FSA as to why he should not be the subject of a financial penalty, or why a lower penalty should be imposed. If he does so, the matters to which the FSA will have regard will include the matters set out in DEPP 6.5B . It should be noted that an administrative difficulty such as pressure of work does not, in itself, constitute a relevant circumstance for this purpose.
(3) The FSA will have regard to repeated failures to submit reports on time. In the majority of cases involving such repeated failure, the FSA considers that it will be appropriate to seek more serious disciplinary sanctions or other enforcement action, including seeking to apply for the cancellation of the firm's permission.
(4) The FSA will also have regard to the submission frequency of the late report when assessing the seriousness of the contravention. For example, a short delay in submitting a weekly or monthly report can have serious implications for the supervision of the firm in question. Such a delay may therefore be subject to a higher penalty than might otherwise be the case.
[Note: For the purposes of DEPP 6.6.2 G, "firm" has the special meaning given to it in DEPP 6.5.1.]

DEPP 6.6.3

handbook-guidance
In addition, in appropriate cases, the FSA may bring disciplinary action against the approved persons within the firm's management who are ultimately responsible for ensuring that the firm's reports are completed and returned to the FSA .
  • 28/08/2007

DEPP 6.6.4

handbook-guidance
In applying the guidance in this section, the FSA may treat a report which is materially incomplete or inaccurate as not received until it has been submitted in a form which is materially complete and accurate. For the purposes of the guidance, the FSA may also treat a report as not received where the method by which it is submitted to the FSA does not comply with the prescribed method of submission.
  • 28/08/2007

DEPP 6.6.5

handbook-guidance
In most late reporting cases, it will not be necessary for the FSA to appoint an investigator since the fact of the breach will be clear. It follows that the FSA will not usually send the firm concerned a preliminary findings letter for late-reporting disciplinary action.
  • 28/08/2007

DEPP 6.7

Discount for early settlement

  • 28/08/2007

DEPP 6.7.1

handbook-guidance
Persons subject to enforcement action may be prepared to agree the amount of any financial penalty and other conditions which the FSA seeks to impose by way of such action. Such conditions might include, for example, the amount or mechanism for the payment of compensation to consumers. The FSA recognises the benefits of such agreements, in that they offer the potential for securing earlier redress or protection for consumers and the saving of cost to the person concerned and the FSA itself in contesting the financial penalty. The penalty that might otherwise be payable in respect of a breach by the person concerned will therefore be reduced to reflect the timing of any settlement agreement.

DEPP 6.7.2

handbook-guidance
In appropriate cases the FSA's approach will be to negotiate with the person concerned to agree in principle the amount of a financial penalty having regard to the FSA's statement of policy as set out in DEPP 6.5 to DEPP 6.5D and DEPP 6.6. (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 stage in the process at which agreement is reached. 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.

DEPP 6.7.3

handbook-guidance
(1) The FSA has identified four stages of an action for these purposes:
(a) the period from commencement of an investigation until the FSA has:
(i) a sufficient understanding of the nature and gravity of the breach to make a reasonable assessment of the appropriate penalty; and
(ii) communicated that assessment to the person concerned and allowed a reasonable opportunity to reach agreement as to the amount of the penalty ("stage 1");
(b) the period from the end of stage 1 until the expiry of the period for making written representations or, if sooner, the date on which the written representations are sent in response to the giving of a warning notice ("stage 2");
(c) the period from the end of stage 2 until the giving of a decision notice ("stage 3");
(d) the period after the end of stage 3, including proceedings before the Tribunal and any subsequent appeals ("stage 4").
(2) The communication of the FSA's assessment of the appropriate penalty for the purposes of DEPP 6.7.3G (1)(a) need not be in a prescribed form but will include an indication of the breaches alleged by the FSA . It may include the provision of a draft warning notice.
(3) The reductions in penalty will be as follows:
  • 28/08/2007

DEPP 6.7.4

handbook-guidance
(1) Any settlement agreement between the FSA and the person concerned will therefore need to include a statement as to the appropriate penalty discount in accordance with this procedure.
(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 FSA 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, FSA staff may consider that greater openness from the person concerned could have resulted in an earlier settlement.
(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) However, in exceptional cases the FSA 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 FSA and person concerned may agree that the amount of the reduction in penalty should reflect the stage at which a settlement might otherwise have been possible.
  • 28/08/2007

DEPP 6.7.5

handbook-guidance
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 FSA will be set out in the final notice.
  • 28/08/2007

Export chapter as

DEPP 7

Statement
of policy on section 169(7) interviews

DEPP 7.1

Application and purpose

  • 28/08/2007

Application

DEPP 7.1.1

handbook-guidance
DEPP 7 applies when the FSA :
(1) has appointed an investigator at the request of an overseas regulator, under section 169(1)(b) (Assistance to overseas regulators) of the Act; and
(2) has directed, or is considering directing, the investigator, under section 169(7) of the Act, to permit a representative of the overseas regulator to attend, and take part in, any interview conducted for the purposes of the investigation.

DEPP 7.1.2

handbook-guidance
In DEPP 7, a "section 169(7) interview" means any interview conducted for the purposes of an investigation under section 169(1)(b) of the Act in relation to which the FSA has given a direction under section 169(7) of the Act.

Purpose

DEPP 7.1.3

handbook-guidance
The purpose of DEPP 7 is to set out the FSA's statement of policy on the conduct of interviews to which a direction under section 169(7) has been given or the FSA is considering giving. The FSA is required to prepare and publish this statement of policy by section 169(9) and (11) of the Act. As required by section 169(10) of the Act, the Treasury has approved the statement of policy.

DEPP 7.1.4

handbook-guidance
The FSA is keen to promote co-operation with overseas regulators. It views provision of assistance to overseas regulators as an essential part of the principles set out in section 2(3)(e) of the Act to which it must have regard in discharging its general functions.

DEPP 7.2

Interviews

  • 28/08/2007

Appointment of investigator and confidentiality of information

DEPP 7.2.1

handbook-guidance
Under section 169(1)(b) of the Act, the FSA may appoint an investigator to investigate any matter at the request of an overseas regulator. The powers of the investigator appointed by the FSA (referred to here as the 'FSA's investigator') include the power to require persons to attend at a specified time and place and answer questions (the compulsory interview power).

DEPP 7.2.2

handbook-guidance
Where the FSA appoints an investigator in response to a request from an overseas regulator it may, under section 169(7) of the Act, direct him to permit a representative of that regulator to attend and take part in any interviews conducted for the purposes of the investigation. The FSA may only give a direction under section 169(7) if it is satisfied that any information obtained by an overseas regulator as a result of the interview will be subject to the safeguards equivalent to those contained in Part XXIII (Public Record, Disclosure of Information and Cooperation) of the Act.

DEPP 7.2.3

handbook-guidance
Part XXIII of the Act contains restrictions on the disclosure of confidential information. The restrictions are subject to exceptions contained in regulations made by the Treasury under section 349.
  • 28/08/2007

Policy on use of investigative powers

DEPP 7.2.4

handbook-guidance
The FSA's policy on how it will use its investigative powers, including its power to appoint investigators, in support of overseas regulators, is set out in the FSA's Enforcement Guide (EG).

Use of direction powers

DEPP 7.2.5

handbook-guidance
The FSA may need to consider whether to use its direction power at two stages of an investigation:
(1) at the same time that it considers the request from the overseas regulator to appoint investigators;
(2) after it has appointed investigators, either at the request of the overseas regulator or on the recommendation of the investigators.

DEPP 7.2.6

handbook-guidance
Before making a direction under section 169(7) the FSA will discuss and determine with the overseas regulator how this statement of policy will apply to the conduct of the interview, taking into account all the circumstances of the case. Amongst other matters, the FSA will at this stage determine the extent to which the representative of the overseas regulator will be able to participate in the interview. The overseas regulator will be notified of this determination on the issuing of the direction.

DEPP 7.2.7

handbook-guidance
The direction will contain the identity of the representative of the overseas regulator that is permitted to attend any interview and the role that he will play in the interview. If the FSA envisages that there will be more than one interview in the course of the investigation, the direction may also specify which interview(s) the overseas representative is allowed to attend.

Conduct of interview

DEPP 7.2.8

handbook-guidance
In circumstances where an interview is to be conducted as part of the investigation, the FSA's investigator will have conduct of the interview. In general, the FSA's investigators will be employees of the FSA , but in appropriate cases the FSA may appoint persons who are not its employees. In those cases, the FSA may choose to require that an FSA employee is present at the interview and may choose to appoint that person as an investigator.
  • 28/08/2007

DEPP 7.2.9

handbook-guidance
The FSA's investigator will act on behalf of the FSA and under its control. He may be instructed to permit the representative of the overseas regulator to assist in the preparation of the interview. Where the FSA considers it appropriate, it may permit the representative to attend and ask questions of the interviewee in the course of the interview. The interview will be conducted according to the terms of the direction and the notification referred to in DEPP 7.2.6 G.

DEPP 7.2.10

handbook-guidance
If the direction does permit the representative of an overseas regulator to attend the interview and ask the interviewee questions, the FSA's investigator will retain control of the interview throughout. Control of the interview means the following will apply:
(1) The FSA's investigator instigates and concludes the interview, introduces everyone present and explains the procedure of the interview. He warns the interviewee of the possible consequences of refusing to answer questions and the uses to which any answers that are given can and cannot be put. The FSA's investigator will always ask preliminary questions, such as those establishing the identity of the interviewee.
(2) The FSA's investigator determines the duration of the interview and when, if at all, there should be any breaks in the course of it.
(3) The FSA's investigator has responsibility for making a record of the interview. The record should note the times and duration of any breaks in the interview and any periods when the representative of the overseas regulator was either present or not present.
(4) Where the FSA's investigator considers it appropriate, he may either suspend the interview, ask the overseas representative to leave the interview, or terminate the interview and reschedule it for another occasion. In making that decision he will bear in mind the terms of the direction, any agreement made with the overseas regulator as to the conduct of the interview and the contents of this statement of policy.

DEPP 7.2.11

handbook-guidance
The FSA will in general provide written notice of the appointment of an investigator to the person under investigation pursuant to the request of an overseas regulator. Whether or not the interviewee is the person under investigation, the FSA's investigator will inform the interviewee of the provisions under which he has been appointed, the identity of the requesting authority and general nature of the matter under investigation. The interviewee will also normally be informed if a representative of the overseas regulator is to attend and take part in the interview. Notification of any of these matters may not be provided in advance of the interview if the FSA believes that the circumstances are such that notification would be likely to result in the investigation being frustrated.

DEPP 7.2.12

handbook-guidance
The interviewee will normally be given a copy of the direction issued under section 169(7) in advance of the interview unless to do so would be likely to result in the investigation being frustrated. The interviewee will also be provided with a copy of this statement of policy.

DEPP 7.2.13

handbook-guidance
The FSA's investigator will determine the venue and timing of the interview. The interviewee will be notified of the venue and timing of the interview in advance and in writing.
  • 28/08/2007

DEPP 7.2.14

handbook-guidance
When the FSA's investigator has exercised the compulsory interview power, at the outset of the interview the interviewee will be given an appropriate warning. The warning, amongst other things, must state that the interviewee is obliged to answer all questions put to them during the interview, including any put by the representative of the overseas regulator. It will also state that in criminal proceedings or proceedings for market abuse the FSA will not use as evidence against the interviewee any information obtained under compulsion during the interview.

DEPP 7.2.15

handbook-guidance
The FSA's investigator may decide which documents or other information may be put to the interviewee, and whether it is appropriate to give the interviewee sight of the documents before the interview takes place. Where the overseas regulator wishes to ask questions about documents during the interview and the FSA's investigator wishes to inspect those documents before the interview, he will be given the opportunity to do so. If the FSA's investigator wishes to inspect them and has not been able to do so before the interview, he may suspend the interview until he has had an opportunity to inspect them.

DEPP 7.2.16

handbook-guidance
When the FSA's investigator has exercised the compulsory interview power, the FSA's investigator will require the person attending the interview to answer questions. Where appropriate, questions may also be posed by the representative of the overseas regulator. The interviewee will also be required to answer these questions. The FSA's investigator may intervene at any stage during questioning by the representative of the overseas regulator.

Language

DEPP 7.2.17

handbook-guidance
Interviews will, in general, be conducted in English. Where the interviewee's first language is not English, at the request of the interviewee arrangements will be made for the questions to be translated into the interviewee's first language and for his answers to be translated back into English. If a translator is employed at the request of the representative of the overseas regulator then the translation costs will normally be met by the overseas regulator. Where interviews are being conducted in pursuance of an EU law obligation these costs will be met by the FSA . In any event, the meeting of costs in relation to translators and, where applicable, the translation of documents will always be agreed in advance with the overseas regulator.

Tape-recording

DEPP 7.2.18

handbook-guidance
All compulsory interviews will be tape-recorded. The method of recording will be decided on and arranged by the FSA's investigator. Costs will be addressed similarly to that set out in the preceding paragraph. The FSA will not provide the overseas regulator with transcripts of the tapes of interviews unless specifically agreed to, but copies of the tapes will normally be provided where requested. The interviewee will be provided with a copy of tapes of the interview but will only be provided with transcripts of the tapes or translations of any transcripts if he agrees to meet the cost of producing them.

Representation

DEPP 7.2.19

handbook-guidance
The interviewee may be accompanied at the interview by a legal adviser or a non-legally qualified observer of his choice. The costs of any representation will not be met by the FSA . The presence at the interview of a representative of the overseas regulator may mean that the interviewee wishes to be represented or accompanied by a person either from or familiar with that regulator's jurisdiction. As far as practical the arrangements for the interview should accommodate this wish. However, the FSA reserves the right to proceed with the interview if it is not possible to find such a person within a reasonable time or no such person is able to attend at a suitable venue.

DEPP 7.2.20

handbook-guidance
In relation to the publication of investigations by overseas regulators, the FSA will pursue a policy similar to the policy that relates to its own investigations.

Export chapter as

Transitional Provisions and Schedules

DEPP TP 1

Transitional provisions applying to the Decision Procedure and Penalties Manual

1. Table DEPP TP 1
  • 28/08/2007

DEPP Sch 1

Record keeping requirements

  • 06/01/2010

DEPP Sch 1.1

handbook-guidance
  • 06/01/2010

DEPP Sch 2

Notification requirements

  • 06/01/2010

DEPP Sch 2.1

handbook-guidance
  • 06/01/2010

DEPP Sch 3

Fees and other required payments

  • 06/01/2010

DEPP Sch 3.1

handbook-guidance
  • 06/01/2010

DEPP Sch 3.2

handbook-guidance

DEPP Sch 4

Powers Exercised

  • 06/01/2010

DEPP Sch 4.1

handbook-guidance

DEPP Sch 4.2

handbook-guidance

DEPP Sch 5

Rights of action for damages

  • 06/01/2010

DEPP Sch 5.1

handbook-guidance
  • 06/01/2010

DEPP Sch 6

Rules that can be waived

  • 06/01/2010

DEPP Sch 6.1

handbook-guidance
  • 06/01/2010

Export chapter as

Back to top