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Fine old mess

The Financial Services Authority rightly said months ago that it wanted to impose heavier fines on City wrongdoers. But the tougher words appear not to have filtered through yet to its semi-independent Regulatory Decisions Committee (RDC), which actually sets the penalties.

Although the RDC has stepped up its punishment rate, issuing a record 25 fines this year, against 20 in 2005, the severity has not increased. The average penalty this year was £520,000, down sharply from £845,000 in 2005.

It’s difficult to compare like with like. A single big fine — such as last year’s £16 million penalty against Citigroup for manipulating the bond markets — can distort the figures. Yet there is no evidence of a step change upwards in tariffs. If anything, given the huge inflation in City profits and pay over the past two years, fines are going down.

To have any deterrent effect, fines have to keep pace, otherwise they are even more likely to be seen as just another cost of doing business, no different from paying the electricity bill.

PS: If Philippe Jabre succeeds with his new hedge fund, he will recoup the £750,000 fine that he paid for insider dealing every week in management fees alone.

Banks reap what they sow as IVA reality bites

Even for the high street banks, £1,400 million is not petty cash. That’s the estimated sum that they have written off this year as a result of borrowers walking away from some of their debts through the instrument of individual voluntary arrangements (IVA).

About 45,000 people opted for IVAs this year, according to KPMG estimates, double the previous year. Many banks are seriously concerned about IVAs, especially the way that they are aggressively and misleadingly marketed by some insolvency firms, which exaggerate the benefits and play down the disadvantages.

IVAs were introduced by the Thatcher Government as an alternative to bankruptcy. The idea was that it would enable entrepreneurs more easily to start a second business if the first one failed.

The reality today is that most IVA debtors have got into difficulties by, bluntly, over-shopping rather than over-investing in equipment. But the banks can expect little sympathy. They are reaping what they sowed after a decade of lavishing credit on people with only the most cursory of suitability checks.

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