Bank of England looks to cut penalties for enforcement actions

The Bank of England wants to cut penalties for errant companies and individuals by as much as half in an effort to incentivise earlier co-operation with probes into wrongdoing at banks, insurers and other financial services firms it oversees.

The proposal, by the central bank’s Prudential Regulation Authority, for an early settlement discount of up to 50 per cent was part of a consultation published on Thursday. The regulator also outlined plans for an “early account scheme” that could offer speedier settlements for non-criminal cases.

Discounts are frequently applied in the PRA’s enforcement actions, but the current maximum is 30 per cent, regardless of whether parties co-operate and agree settlement terms in the early days of an investigation or fight it tooth and nail before agreeing a deal in a probe’s final hours.

Sam Woods, chief executive of the PRA, said the proposals reflected lessons learned by the regulator in its first decade which “allowed us to review the bank’s enforcement policies to ensure they are clear and enable efficient, effective enforcement outcomes”.

During that period, the BoE pursued 25 successful enforcement cases, including a 2018 action against then-Barclays chief executive Jes Staley over whistleblowing infractions, which resulted in a £640,000 joint fine with the Financial Conduct Authority, and a probe of Standard Chartered for regulatory reporting failings that led to a £46mn penalty.

Matthew Nunan, a lawyer at Gibson Dunn and former enforcement official at the FCA, said there could be a “very substantial saving” to regulators if firms and individuals co-operated, leading to an early end to a probe. The regulator can only wind up an investigation early if it is satisfied the disclosures represented a “true picture of the facts”, Nunan added.

Nunan said an early settlement discount scheme would probably appeal to City firms for reputational reasons, rather than the financial savings it might offer. “Often the ability to get the regulator to acknowledge that the firm has fully co-operated and remediated the matter is the most important thing, and a recognition that the subject qualified for the biggest discount possible could be significant.”

He said that companies would also welcome the new early account scheme since “the ability to get an issue resolved speedily and move on” was a priority, given that “we have seen share prices bounce even when large fines are announced because the market recognises the benefit of drawing a line under an issue”.

But Robert Dedman, a lawyer at CMS and former head of enforcement at the PRA, warned of potential pitfalls, since firms would have to “move quickly to qualify [for the discount] without necessarily knowing the full extent of the failing alleged”.

“The scheme also increases risks for senior managers who have been suspended or dismissed by their firms, as they may find themselves effectively unable to access the information they need to qualify for the discount,” he added.

The PRA consultation period runs until August 4.