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Factors impacting on Administrative Penalties imposed by FSCA

We have in the past raised concerns about how the quantum of such fines were determined.

A recent ruling by the Financial Services Tribunal provides legal clarity on the matter.

Section 167(1) of the Financial Sector Regulation Act provides that the responsible authority for a financial sector law may impose an appropriate administrative penalty that must be paid to the financial sector regulator if the person has contravened a financial sector law.

The administrative penalty must be appropriate, and in this regard the section states that the matters that the responsible authority must have regard to the following:

(i) The need to deter such conduct;
(ii) the degree to which the person has cooperated with a financial sector regulator in relation to the contravention; and
(iii) any submissions by, or on behalf of, the person that is relevant to the matter, including mitigating factors referred to in those submissions (sec 167(2)(a))

In addition, and without limiting these three factors, the matters that the responsible authority may have regard to include the following:

(i) The nature, duration, seriousness and extent of the contravention;
(ii) any loss or damage suffered by any person as a result of the conduct;
(iii) the extent of any financial or commercial benefit to the person, or a juristic person related to the person, arising from the conduct;
(iv) whether the person has previously contravened a financial sector law;
(v) the effect of the conduct on the financial system and financial stability;
(vi) the effect of the proposed penalty on financial stability;
(vii) the extent to which the conduct was deliberate or reckless (sec 167(2)(b)).

In a recent decision of the Tribunal, the provision was discussed in greater detail.

It is however necessary to stress that the Tribunal is not entitled to interfere with the exercise by the Authority of its discretion unless it:

(i) failed to bring an unbiased judgment to bear on the issue;
(ii) did not act for substantial reasons;
(iii) exercised its discretion capriciously; or
(iv) exercised its discretion upon a wrong principle.

This is certainly a huge improvement on previous regulations which were far less prescriptive and open to biased application.

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