Duff & Phelps' Kinetic Partners division publishes 2015 Global Enforcement Review

SEC Issues Record Monetary Sanctions in 2014 – up 35% from 2013

The U.S. Securities and Exchange Commission (SEC) issued monetary sanctions of over $4.6 billion in 2014, according to the 2015 Global Enforcement Review published today by Duff & Phelps' Kinetic Partners division. In compiling the annual report, Kinetic Partners analyzed publicly available data from financial services regulators across the U.S., UK and Hong Kong to determine regulatory trends and their effects on the financial services industry.

Kinetic Partners observed that there was a 35% increase in the total value of disgorgements and penalties by the SEC in 2014 – up from $3.4 billion in 2013. Other significant findings include:

  • The average value of financial penalties issued by the SEC in 2014 increased by 10% from the previous year and rose by 50% from 2009.
  • Average fine values more than doubled from 2013 to 2014 at the Commodity Futures Trading Commission (CFTC) and the Financial Industry Regulatory Authority (FINRA), up to $48.8m and $0.1m per financial penalty, respectively.
  • There was a noteworthy focus on individual enforcement in the U.S.: the SEC brought actions against 449 individuals, or 59% of penalties overall, compared to 306 financial institutions; FINRA banned the highest number of individuals from the securities industry in 2014 (481, up from 429 in 2013 and 294 in 2012); and nearly half (45%) of CFTC enforcement actions were levied against individuals.

“Actions against individuals are likely to play an increasingly integral role in regulators’ efforts to deter bad behavior,” said Julian Korek, Head of Compliance and Regulatory Consulting at Kinetic Partners, a Division of Duff & Phelps. “Such sanctions are an undeniably powerful deterrent as, unlike financial penalties imposed on firms, they cannot be written off as a business cost. Regulatory leadership recognizes that an organization’s senior management is not necessarily able to police staff at all levels, so holding the bad actors themselves accountable is a step towards influencing institutional culture in the right direction. However, there is also a real risk that the targeting of individuals could reduce the attractiveness of financial services as a career. As always, it is a balance that regulators need to strike.”

“2014 saw a significant spike in the severity of financial penalties virtually across the board, as regulators have been getting tougher on both firms and individuals,” commented Monique Melis, Managing Director and Global Head of Regulatory Consulting at Kinetic Partners, a Division of Duff & Phelps. “However, the averages only tell part of the story as they have been pushed up by a relatively small number of historic fines, mainly relating to Libor and Forex manipulation. We are now entering an era of regulatory enforcement in which the ‘new normal’ consists of exceptionally severe penalties and a growing focus on individual bad actors, the aim of which is to impact and change the culture of firms.”

The report also looked at trends in the UK and Hong Kong:

  • In the UK during the 2013/14 fiscal year, the Financial Conduct Authority (FCA) issued 46 fines– down from 51 issued by the FCA’s predecessor, the Financial Services Authority (FSA), in 2012/13 and 83 in 2010/11. 
  • While the number of fines issued by the UK watchdog has decreased, penalties have increased in value. The average fine issued by the FCA in 2014 was two and a half times higher than in 2013, at £36.785m compared to £9.88m in 2013. This is indicative of a trend in recent years, as the average monetary sanction has increased by more than 1,800% since 2009, when the average FSA fine was £20.7m.
  • The total value of fines issued by the FCA in 2014 has increased by 68%, up from £474.268m in 2013. 
  • In Hong Kong, the Securities and Futures Commission (SFC) issued HKD 62.8m in fines in 2014, compared to HKD 40.7m in 2013, a 50% increase in one year. 
  • While the number of SEC enforcements increased, the FCA and SFC both showed a decrease in the number of enforcement actions from the 2013 to 2014. 
  • The SFC pressed criminal charges against 26 individuals in 2013/14, the highest since 2010.

About Kinetic Partners
Kinetic Partners, a Division of Duff & Phelps, provides a full range of award-winning regulatory consulting, compliance consulting, risk advisory, due diligence, tax advisory, corporate recovery and forensic and dispute services to financial services clients who value their expert service delivery and unique approach. Established in 2005, they have built a multidisciplinary team of recognized experts drawn from regulators, financial institutions and leading professional services firms. They are a trusted advisor to over 1,300 clients across their offices in New York, London, Hong Kong, Cayman Islands, Channel Islands, Chicago, Dublin, Luxembourg, Singapore and Switzerland.

About Duff & Phelps
Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, dispute and legal management consulting, M&A, restructuring, and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. For more information, visit www.duffandphelps.com.
M&A advisory and capital raising services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising services in the United Kingdom and Germany are provided by Duff & Phelps Securities Ltd., which is authorized and regulated by the Financial Conduct Authority.

Media Relations

Harry Laverty
Kinetic Partners, a Division of Duff & Phelps
(646) 867-7826
harry.laverty@duffandphelps.com

Jennifer Sanders
Perry Street Communications 
(214) 965 9955
(214) 909 0400
jsanders@perryst.com

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