The Fraud Investigation and Dispute Services (FIDS) team at EY has today released new research revealing the latest trends in activity from UK regulatory bodies. The research revealed that UK businesses and executives have already been fined over £166m by the OFT, FCA and FSA since the start of 2013 as a result of business misconduct, following over £222m of fines in the latter half of 2012.

EY’s research analysed data from 74 separate investigations concluded over the past 12 months. It uses information provided by governing bodies including the Office of Fair Trading (OFT), Serious Fraud Office (SFO) and Financial Services Authority/Financial Conduct Authority (FSA/FCA), based upon investigations reported by the authorities from cases which resulted in fines and other punishment to businesses and individuals. The data compared penalties imposed on firms and individuals across the past twelve months, focusing on changes in trends between the latter half of 2012 and the first half of 2013.

The study revealed that 76% of all investigations and 93% of the fines identified in the past six months were directed at financial services firms and personnel, resulting in over £154m in fines to the sector. It suggests that regulators’ focus on the behaviors of financial institutions is not waning, following an end to 2012 where 94% of investigations and 99% of the value of fines were focused on the financial services sector including the largest fine ever issued by the FSA.

EY’s EMEIA Fraud Survey suggests, however, that Financial Services remain ahead of the pack when it comes to fighting corruption and bribery. For example, more than three quarters (79%) of people surveyed who work in financial services firms said their company had a clear code of conduct and an anti-bribery/anti-corruption policy in place. This contrasts with the cross-industry average of 57% and a figure as low as 44% in the real estate industry.

John Smart, Head of EY’s UK Fraud Investigation & Disputes Services practice said: “While the total value of fines issued so far this year is down £56m compared with the second half of 2012, this is as a result of one extremely large fine in late 2012. Furthermore, when disregarding any fines over £30m, we have seen an increase in the average fine handed out by regulators (from £2.8m to £3.9m), indicating the continuing tough stance that regulators are taking across all industries.”

The study’s findings also suggest that the restructuring of the FSA to the FCA does not appear to have resulted in a significant change in the number of investigations. In the first quarter of 2003, EY identified 11 completed investigations, while in the FCA’s first three months from April-June 2013 10 investigations were identified.

John Smart concludes: “This research clearly shows that there has been no let-up in regulator activity with regards to investigations into fraudulent activity and business misconduct. With the Sentencing Council proposing changes to guidelines that would make England and Wales one of the toughest regimes in the world for fraudulent activity and other corporate offences, directors and board members must ensure that their houses are kept in order. The best way firms can make sure they aren’t caught unaware is to ensure full risk and systems reviews are in place and any blind spots are quickly identified and resolved.”

Additional findings from the research include:

  • Average prison sentences increased from 6 years and 4 months to 6 years and 8 months since the end of 2012
  • Sizable fines have been issued to the essential and non-essential consumer goods sectors, totalling £6,500,000 and £2,857,369 respectively, showing that regulators are not reserving significant fines simply for the financial services industry
  • The SFO undertook just 10 of the 74 investigations reviewed – this is largely due to the SFO’s status as a prosecutor compared to the FSA/FCA’s regulator status – in order to launch an investigation, the SFO must suspect a crime has been committed whilst the FSA/FCA and the OFT can take actions at any time