[2025] UKUT 00185 (TCC)

DEPP 6.1.2 states that the principal purpose of imposing a financial penalty is to promote high standards of regulatory and/or market conduct by deterring persons who have committed breaches from committing further breaches, and helping to deter other persons from committing similar breaches, as well as demonstrating generally the benefits of compliant business.

DEPP 6.5.2 states that the FCA's penalty-setting regime is based on the following principles:

DEPP 6.5.3 sets out a five-step framework to determine the appropriate level of financial penalty, with further details provided in subsequent chapters, and it states that these steps “will apply in all cases”.

In relation to non-market abuse cases such as this one, the relevant framework is at DEPP 6.5B, and begins as follows.

Pausing there, as Mr Jaffey said in closing, these percentages are based on a person’s gross income, but any penalty will be paid out of net income, ie after tax and National Insurance Contributions.

The DEPP 6.5B framework continues as follows:

“(6)

The FCA will assess the seriousness of a breach to determine which level is most appropriate to the case.

(7)

In deciding which level is most appropriate to a case against an individual, the FCA will take into account various factors which will usually fall into the following four categories:

(a)

factors relating to the impact of the breach;

(b)

factors relating to the nature of the breach;

(c)

factors tending to show whether the breach was deliberate; and

(d)

factors tending to show whether the breach was reckless.”

The factors relating to the impact and nature of the breach have already been set out at §§565-567. The DEPP continues by reference to factors which tend to show that a breach was deliberate or reckless (neither of which are relevant here), followed by factors which are likely to be considered “level 1 factors”, “level 2 factors” or “level 3 factors”. These include:

“(a)

little, or no, profits were made or losses avoided as a result of the breach, either directly or indirectly;

(b)

there was no or little loss or risk of loss to consumers, investors or other market users individually and in general;

(c)

there was no, or limited, actual or potential effect on the orderliness of, or confidence in, markets as a result of the breach;

(d)

the breach was committed negligently or inadvertently;…”

DEPP 6.5.3(3) records that “a penalty must be proportionate to the breach” and says that the Authority “may decrease the level of the penalty arrived at after applying Step 2 of the framework if it considers that the penalty is disproportionately high for the breach concerned”.

Step 3 is “mitigating and aggravating factors” and provides that the Authority may increase or decrease the figure arrived at following Step 2, to take into account factors which aggravate or mitigate the breach. We say more about Step 3 at §604 below.

Step 4 is “adjustment for deterrence”. DEPP 6.5B.4 begins by saying:

“If the FCA considers the figure arrived at after Step 3 is insufficient to deter the individual who committed the breach, or others, from committing further or similar breaches then the FCA may increase the penalty.”

Step 5 is “settlement discount” and is relevant where the person on whom the penalty is imposed comes to an agreement with the Authority.