FactCheck Q&A: Where will Barclays’ fines go?
“Under the previous government’s regime, fines paid to the FSA (Financial Services Authority) are used to reduce the annual levy other financial institutions are asked to pay…We are considering ammendments to the Financial Services Bill that will ensure that fines of this nature go to paying the taxpaying public, not the financial industry.”
- Chancellor George Osborne, House of Commons, 28 June 2012
Barclays Bank has been ordered by US and British authorities to pay a record-breaking £290m in fines this week.
Of that, the Financial Services Authority demanded £59.5m – the biggest fine it’s ever imposed in its 10-year history.
But the sense of relief that Barclays has been brought to book will be shortlived when ordinary taxpayers learn that under current rules, they won’t see a penny.
FactCheck’s been looking at how the financial services industry benefits when one of their own messes up.
So what actually happens when the FSA fines one of their members?
As Mr Osborne said, it goes to their colleagues. Money collected in fines is used to reduce fees for FSA members the following year.
First, the FSA calculates the cost of the investigation which led to the fine.
Some members, who would otherwise be paying for those enforcement costs, get that back first. That’s in order to prevent their fees from being raised the following year.
After that, the FSA takes what’s left of the fines, and works it out as a percentage of what’s left to pay in total fees.
Each member then gets a discount on their fees based on that percentage.
The FSA has around 27,000 members in total. For the current year, the FSA asked for fees totalling £559.8m from its members. Fines received last year came to £70.7m.
So overall, all members were asked to pay £489.1m.
In the last 10 years, total fines the FSA has imposed come to an eye-watering £377,741,817.5. That’s all been passed back to the financial services industry, in one form or another.
It’s difficult to say how much each member gets, as the FSA doesn’t publish detailed breakdowns.
But given that a proportion of the fines collected are re-distributed as a percentage, the higher the individual fee, the more they’ll get back.
For example, investment banks can pay an average of £20m a year in fees. General insurers pay an average of £2.4m, and life insurers pay around of £5m.
What about the firm that committed an offence in the first place – do they get the discount?
Not for that particular year. The FSA says that if they’ve imposed a penalty on a firm, they won’t get the fees deducted.
Initially, they actually do, but they have to pay it back. The fee discount is applied to them, but they’re then invoiced for it by the FSA, as long as the discount came to more than £250.
The FSA says that in 10 years, nobody has ever received a discount of less than £250, and nobody has ever refused to pay up what’s demanded in the invoice.
So why is it that it’s the financial services industry benefits when one of them messes up, and not the taxpayer?
The FSA is keen to point out that it’s not a taxpayer-funded organisation. It’s funded entirely by the industry.
Rules governing where fines go are enshrined in the Financial Services and Markets Act 2000, which says that the FSA is required to ensure that financial penalties are applied for the benefit of members.
How will the Barclays scandal change things?
Mr Osborne doesn’t think it’s fair that fines should go back to offenders’ colleagues.
After all, fines imposed by a court for criminal offences go back to the Treasury, and many have said that Barclays should be treated as a regular offender.
And given the FSA’s managed to pick up just under £378m in fines in 10 years, it’s no wonder Mr Osborne would like some of that to go to the state.
So will the taxpayer ever see a penny of those fines?
Under changes to financial regulation being proposed by the government, they may do.
The government’s looking at abolishing the FSA altogther under the Financial Services Bill.
Mr Osborne’s said that he wants the Bill to be amended so that in future, fines will go to the taxpayer.
He also told the House of Commons that he’s asked officials to look into whether the £59.5m fine imposed on Barclays could be given to taxpayers.