SteelEye analysed financial penalties issued by the UK’s FCA; the US SEC; France’s AMF; the Netherlands’ AFM; and Germany’s BaFin and Federal Office of Justice, to create a snapshot of financial services fines for compliance failures in 2022. The results show just how grave the consequences are, across markets, for those that fail to meet their obligations.

• The number of Financial Conduct Authority (FCA) fines spiked in 2022, at 26 compared to 10 in 2021, but the total value dipped, from £567.77M in 2021 to £215.83M in 2022.

• The Securities and Exchange Commission (SEC) issued a record $6.4BN in penalties, with its WhatsApp crackdown amounting to fines of $1.1BN.

• Germany’s financial regulators - the Federal Financial Supervisory Authority (BaFin) and the Federal Office of Justice (FOJ) - issued 46 fines in total, with reporting delays accounting for two-in-three.

• France’s stock market regulator, the Autorité des Marchés Financiers (AMF) fined firms €95M, including a single fine of €75M for breaches of professional obligations.

• Netherland’s Authority for the Financial Markets (AFM) issued three fines in total, all of which were in relation to money laundering, totalling €903K.

THE NUMBER OF FCA FINES INCREASED BY 160% IN 2022, BUT THE OVERALL VALUE DROPPED BY 61%, SUGGESTING INCREASED ACTION AGAINST SMALLER FIRMS

The number of fines issued by the FCA hit a six-year high in 2022, though the total financial value of those fines more than halved compared to the previous 12 months. Last year, fines amounted to £215.8M, down from £557M in 2021 - when fines reached their highest level since 2015, representing a 61% decrease. Fines in 2020 totalled £192.57M.

Whilst the overall value of fines was down, the number of fines issued in 2022 nearly tripled, rising from 10 to 26. This suggests that, while in previous years, regulators have focussed on large-scale breaches by big banks and blue chips, enhanced supervisory technology has improved their ability to identify and take action against failings across market participants of all sizes.

Over the three-year period between 2020 and 2022, 47 fines were issued in total, amounting to nearly £1BN (£976.17M):

• 43% of fines (20) mentioned PRIN 3 breaches. Principle 3 of the FCA’s Principles for Businesses relates to management and control, stating a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems

• 21% of fines (10) mentioned PRIN 2 breaches. Principle 2 states that a firm must conduct its business with due skill, care, and diligence

• 19% of the enforcements (9) were related to MAR or market abuse violations

• 11% of the fines (5) in this period mention the treatment of customers

• 9% (4) mentioned money laundering

SEC FILED A RECORD $6.4BN IN PENALTIES, AS WHATSAPP CRACKDOWN AMOUNTED TO $1.1BN

In 2022, the SEC filed a total of 760 enforcement actions, a 9% increase compared to 2021. The enforcement actions equated to $6.4BN in financial penalties, which is an all-time record. This included fines totalling $1.1BN for 16 Wall Street giants for failing to monitor or prevent their workers from using unauthorised messaging apps.

Commenting, Brian Lynch, President of SteelEye US said: “These communication channels are becoming ubiquitous in certain markets, and yet SteelEye’s 2022 Compliance Health Check report, which surveyed 170 senior compliance professionals in financial services, found that just 15% of firms are monitoring WhatsApp. Even fewer are monitoring Slack (9%) and Signal (3%). If we consider the more expected channels it is clear that there is significant work to be done, with just 40% capturing Microsoft Teams, and 25% Zoom.”

EUROPEAN FINES - GERMANY CRACKED THE WHIP ON REPORTING DELAYS, WHILST THE DUTCH TACKLED MONEY LAUNDERING, AND THE FRENCH TARGETED PROFESSIONAL OBLIGATION BREACHES

In Germany, BaFin and the FOJ issued 46 fines in 2022, totaling €24.61M; 10 of which were published on an anonymous basis, at a total value of €671K. The highest penalty for a single firm was €11.29M for reporting delays. In fact, reporting delays accounted for 30 of the 46 fines issued in the period, amounting to €8.9M in total. Eight fines were charged for MAR breaches, at a total of €613.5K, and there was one fine, of €498K, for insider dealing.

In France, fines issued by the AMF reached a grand total of €95.08M. There were 15 fines throughout the year. Ten of these were in relation to breaches of professional obligations, with one firm ordered to pay a staggering €75M. Four were related to market abuse, totaling €195K and there was one fine for marketing and disclosure of information to third parties.

In the Netherlands, three fines were levied against two firms, all for money laundering, at a total of €903K.

REGULATORS PILE ON THE PRESSURE

It is clear from the SteelEye 2022 Fine Tracker that regulators are intensifying their hunt for compliance breaches to strengthen the integrity of the financial markets. Across the board, regulators are bolstering their own technology platforms to sift through the vast volumes of data received from the market more efficiently, and better spot violations among the firms they regulate. Whistle-blower programs have also been strengthened over recent years - all to help regulators ensure fair, stable and secure markets.

Commenting, Matt Smith, CEO and co-founder of SteelEye, said: “There remains a lot of work to be done by financial services firms to ensure they do not fall short of their obligations. As regulators get more aggressive in their enforcement action, firms need to really think about how robust their compliance programs and policies are. Particularly against the backdrop of recession fears, pressure to perform is mounting. With that, firms of all sizes are putting de-risking strategies in place.

“Meanwhile, regulators are using powerful data analytics tools to identify malpractice more accurately among the companies they regulate, meaning more firms are at risk of scrutiny. Investing in technology is key for firms to ensure they can identify risks, and increasingly, this requires an integrated approach to compliance. As such, we expect many players will up-skill and up-tool in 2023.”