Paving the way for higher FCA market abuse fines: FCA consultation CP26/19

The FCA is proposing to increase its minimum penalty for the most serious market abuse committed by individuals. Where misconduct is assessed at seriousness level 4 or 5, the minimum disciplinary penalty would rise from £100,000 to £150,000. The FCA says the current figure has been unchanged since 2010 and should be updated to reflect inflation. It proposes using CPIH (consumer price index plus housing costs) as an index and automatically adjusting the minimum every two years from 1 May 2028, rounded to the nearest £10,000. 

In our view, this is more than a technical inflation update. The FCA continues to view minimum penalties as a significant tool to deter individuals from committing market abuse and has communicated elsewhere to the market its focus on market abuse as an enforcement priority.

The FCA also proposes to amend wording of part of its penalty policy in DEPP 6.5B concerning non-market abuse cases, so that it is clear that the FCA may increase a penalty where in its view the product of other calculations would otherwise not have sufficient deterrent effect, in light of the size of the individual’s income or net assets.

This change is intended to remove what the FCA sees as ambiguity in the current wording for non-market abuse cases, which it says some have read (in comparison with existing guidance for market abuse cases, which is worded differently) as only permitting the FCA to increase penalties in non-market abuse cases where the individual’s income is small or zero.

The consultation also proposes amendments to clarify how “relevant income” will be calculated for penalties on individuals, following decisions of the Upper Tribunal in 2025 relating to bonuses and other delayed benefits, such as shares.

The FCA proposes to make changes to DEPP 6 to make clear that: 

• benefits a person receives after the misconduct period but earned during it will count as relevant income;
• where a person’s income is uncertain when calculating a penalty, that income will still count as relevant income, but the FCA may estimate it or adjust for the likelihood of receipt;
• benefits a person receives during the misconduct period but which were earned in an earlier period will not be treated as relevant income;
• nor will benefits which it is known, at the time of penalty calculation, a person will never receive; and
• the FCA may “increase for deterrence a penalty calculated by reference to relevant income if that income was reduced by the firm, as a result of the misconduct in question”.

These changes are particularly relevant for individuals facing FCA penalties who have complex remuneration arrangements, including deferred, conditional or share-based elements. Whilst the FCA contends that its proposed reforms should make this aspect of its penalties policy more predictable, specific calculations will remain essential in each case. In our view, even if these reforms are implemented, there is likely to be argument over exactly how FCA penalties should be calculated in such cases as judgement will still be needed over aspects of the calculation.

The FCA’s current policy on serious financial hardship in DEPP 6.5D states that the FCA is only likely to be satisfied that a penalty would cause an individual serious financial hardship if, over a reasonable payment period (normally no more than three years), the individual’s net annual income would fall below £14,000 and capital below £16,000 as a result of payment of the penalty. The existing thresholds also date from 2010. The FCA proposes to increase those thresholds to £21,000 for income and £24,000 for capital, with automatic CPIH-linked adjustment every two years from 1 May 2028, rounded to the nearest £1,000.  

The FCA’s proposed increase of these thresholds is unsurprising and, in our view, overdue. The PRA had separately reviewed its own equivalent thresholds for serious financial hardship some time ago, and has adopted a different approach (linked to certain ONS statistics) from the one FCA is now proposing (1).   

Neither the FCA’s current thresholds on serious financial hardship, nor its proposed new thresholds, expressly take into account the differing cost of living in different parts of the UK. In London, for example, where the cost of living is materially higher than the rest of the country, there is in our view arguably a justification for a different and higher income threshold to determine the point at which payment of a penalty may start to cause financial hardship.

The consultation also proposes two other SFH-related changes:

• to remove the phrase “exceptionally severe” from the assessment of the impact of selling a home on other occupants, to reflect the FCA’s existing practice of considering representations about any impact on other occupants; and
• stating expressly that the disgorgement element of a penalty will not be reduced for serious financial hardship. Whilst the FCA’s position on this issue – that a person should not benefit from their misconduct and disgorgement removes this – is understandable, it does raise an issue of what practically should happen in circumstances where the benefits of any misconduct have been dissipated, the individual is in serious financial hardship, and is unable to pay even the disgorgement amount. One effect of the reformed policy could potentially be to make individual insolvency processes more likely.

(1) See the PRA’s latest statement of enforcement policy, November 2024, at pp60-61.

The paper also proposes an operational change to the FCA’s settlement decision-making. At present, at least one settlement decision maker must be from outside the Enforcement and Market Oversight Division. The FCA is proposing to change this for cases referred from Market Oversight, because it may prevent the decision-maker panel from including the most technically expert individuals in market abuse or listings-related matters.

Its proposal is therefore that, where an investigation was referred from Market Oversight, both settlement decision makers may be from within Enforcement and Market Oversight, provided neither was directly involved in establishing the evidence. For participants to have confidence in the reformed process, and for the requirements of s395 FSMA to be satisfied, in our view the FCA will need to be ready to engage with defendants to provide reasonable assurance that a settlement decision maker from Market Oversight had no role in establishing the relevant evidence.

The consultation also makes amendments to DEPP in advance of the entry into force of the new market abuse regime for cryptoassets (MARC). In broad terms, the FCA’s proposals would result in the existing DEPP 6 penalty framework for market abuse in traditional financial markets (under the Market Abuse Regulation) applying equally to abuse of crypto markets, including use of inside information as prohibited under the new crypto regime. The proposals also reflect certain new concepts and powers granted to the FCA by the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026, in particular relating to the temporary exemption/wind-down regime for firms with pre-existing contracts who are unable to obtain full FSMA authorisation to undertake regulated crypto activity.

CP26/19 is a targeted consultation, but in our view it is directionally important. As we see it, the FCA has produced a set of proposals to bolster the deterrent effect of penalties, reduce ambiguity in areas tested by recent litigation and align DEPP with its expanding remit, including crypto assets.

The proposed changes appear to us to be broadly evolutionary rather than radical. Some might argue that there is a case for more fundamental reform, for example to look again at the FCA’s current five-step approach to calculating penalties, which affords it very considerable discretion using a system some see as opaque and unpredictable. The PRA, for example, in its reforms introduced in early 2024 brought into force a new Early Account Scheme, diverging from the FCA’s penalties regime, but the FCA is not introducing an equivalent using this consultation. It remains to be seen how the new powers would be used in practice, however higher fines in the future, particularly on individuals, seem inevitable.