UT-2022-00097 - [2024] UKUT 00352 (TCC)

As Mr Hinks submitted, this provision gives effect to the deterrence principle set out in DEPP 6.5.2(3), that any penalty imposed should deter the firm or individual who committed the breach, and others from committing further or similar breaches.

There is no further guidance in DEPP as to the basis on which any particular multiplier should be applied. However, on the one hand we agree with the Authority that a multiplier should be applied in cases where the absolute value of the penalty is too small in relation to the breach to meet the Authority’s objective of credible deterrence. On the other hand, the application of a multiplier should not result in a penalty that is disproportionate to the breach and which is inconsistent with similar cases.

We were provided with Final Notices in respect of the regulatory outcomes against a number of the other brokers involved in the Solo Business. In the case of Sapien, a multiplier of 2 was applied. That gave rise to a penalty (before discount for settlement) of £58,000 in circumstances where the disgorgement figure was £178,000, so that the penal figure was approximately one third of the disgorgement figure. In other cases, the ratio between the penal figure and the disgorgement figure was much higher, sometimes above 75% of the disgorgement figure. Those figures were arrived at by the application of multiples of 4 or 5.

In our view, one rational approach in relation to Step 4 is to look at the ratio between the disgorgement figure and the penal element. This is not necessarily the correct approach in every case, but we think it is appropriate here when having regard to the outcomes in similar cases involving Solo Business, so as to ensure a measure of consistency.

The higher the ratio between the penal figure and the disgorgement figure, the more likely it is that the credible deterrence objective will be achieved. This is an approach followed in other penalty regimes, particularly those related to tax penalties, where penalties are often imposed in an amount which represents a percentage of the relevant tax at stake.

We agree with the Authority that if no adjustment were made at Step 4 in this case credible deterrence would not be achieved. We therefore reject Mr Mansell’s submission that there should be no adjustment in this case for deterrence.

Having regard to the previous cases we consider that a multiplier of 4 is too high in this case. In our view, a multiplier which produces a figure which is in the region of 100% of the disgorgement amount would be both proportionate and achieve credible deterrence. We therefore consider that a multiplier of 2 would be appropriate in this case.

We therefore conclude that the Step 4 figure should be £148,050.