Watchdog faces huge fall in fines revenue from foreign exchange trading scandal

Complex inquiry into foreign exchange fixing could delay £1bn income for FCA

Cash raised from fines on financial miscreants will fall sharply this year if watchdogs fail to secure a mass settlement of the foreign exchange trading scandal.

Penalties have raised £307.3m to date, a fall of more than 10 per cent on the £337.2 collected by this time last year.

The 2013 total came in at £474.2m, with the majority of the surge in the last three months of that year accounted for by the £105m fine levied on Rabobank over the Dutch bank’s role in the Libor interest rate fixing scandal and a £28m charge on Lloyds over sales incentives.

While substantial single fines like these can make total revenues from penalties volatile, the number of fines has also fallen this year. So far just 26 penalties have been levied. During the same period last year a total of 37 had been finalised, out of a total of 46 for the year as a whole.

The final figure this year hinges on the result of the foreign exchange investigation.

The idea of a group settlement involving six banks – thought to be Barclays, Royal Bank of Scotland, HSBC, Citi, JP Morgan and UBS – emerged last week. Such a deal could be finalised by the end of the year. It would make 2014 a record for fine revenues, with the combined penalty for all six expected to exceed £1bn.

Individual penalties are thought likely to come in at above the Financial Conduct Authority’s record fine of £160m imposed on UBS for its role in the Libor affair.

Huge resources have been pumped into the foreign exchange investigation at a time when the Libor scandal is still not yet finished. Watchdogs have had to sift through hundreds of thousands of emails often in technical language.

The smaller number of penalties could come as the number of regulated firms has fallen, due to initiatives such as the Retail Distribution Review, which has shaken up the way financial products are sold.

Tracey McDermott, director of enforcement and financial crime at the Financial Conduct Authority, said: “Over the last few years, the FCA has been focused on the financial advice market and we brought in reforms that improved standards and raised professionalism. We have also done a substantial amount of work to try to prevent inappropriate products being sold to ordinary investors.

“This has not only included enforcement action but also a range of the other tools at our disposal including the authorisations process; our supervision work; redress schemes; guidance and rule changes.”

The FCA has declined to comment on any “group settlement” of the forex trading scandal.