FCA consultation on penalty decision-making: practical implications for firms

While the Consultation is technical in nature, it signals a continued focus on transparency, consistency and deterrence by the FCA when it comes to enforcement outcomes.

We consider the key proposals and, importantly, what firms should be doing now.

What is the FCA proposing?

The Consultation focuses on refining the FCA’s existing penalty framework rather than introducing a wholesale redesign. 

The key themes include:

• Greater clarity on penalty calculation

The FCA aims to provide more detailed guidance on how penalties are calculated, particularly in relation to assessing the seriousness of misconduct and the role of revenue-based metrics. This is intended to improve predictability and address concerns about perceived variability in outcomes.

• Adjustments to aggravating and mitigating factors

The FCA is proposing clearer articulation of factors that increase or reduce penalties. This includes how cooperation, remediation and governance failings are weighed in the final decision.

• Reinforcing deterrence

A central theme is ensuring penalties continue to act as an effective deterrent. The FCA signals it may place greater emphasis on ensuring penalties are sufficiently meaningful relative to firm size and impact.

• Process improvements

The proposals also touch on decision-making processes, with a focus on making outcomes easier to understand and more consistent across cases.

What is changing?

The FCA is proposing targeted changes to its penalty and decision-making policies, including:

• Market abuse cases: increasing the minimum penalty for individuals in the most serious cases from £100,000 to £150,000 to reflect inflation.
• Deterrence for wealthier individuals: clarifying that penalties may be increased for deterrent effect, taking account of income and assets.
• Individuals’ relevant income: explaining how deferred bonuses, pay and shares will be treated, in line with recent Upper Tribunal decisions.
• Serious financial hardship: raising income and capital thresholds to reflect living costs, with scope for future updates.
• Settlement decision-makers: giving the FCA more flexibility over who makes settlement decisions in certain cases.
• Cryptoasset market abuse: extending the penalty framework to cover cryptoasset market abuse and reflect new powers under the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026.

Why this matters

Although many elements reflect existing FCA practice, the Consultation indicates a continued regulatory focus on:

• Consistency: Firms should expect fewer unexplained variations in penalty outcomes.
• Transparency: The FCA is seeking to make its reasoning more visible, which may increase scrutiny of firm conduct.
• Accountability: There is a clear alignment with broader enforcement trends emphasising governance and senior management responsibility.

What firms should do now

Even at consultation stage, there are practical steps firms can take:

• Review enforcement risk frameworks

Check whether internal risk assessments align with the FCA’s proposed emphasis on seriousness, revenue linkage and deterrence. Consider whether similar fact patterns internally would lead to outcomes consistent with the direction of travel.

• Stress-test governance and controls

Given the focus on aggravating factors, firms should revisit how control failings are identified, escalated and remediated. Weak governance remains a key concern for the FCA and is a driver of higher penalties for misconduct.

• Strengthen documentation of mitigation

Where issues arise, firms should ensure that cooperation, remediation and self-reporting are clearly documented. The FCA’s proposals suggest these factors will continue to materially influence outcomes.

• Update training and guidance

Compliance and legal teams may consider incorporating the proposed changes into training materials, particularly for senior managers and conduct risk teams.

What this means

In practical terms, the Consultation is less about changing the FCA’s rules and more about sharpening how they are applied. This comes in the wake of the FCA’s recent enforcement shift to fewer investigations, but more impactful ones; greater transparency about investigations; and a focus on issues such as financial crime, market abuse, individual accountability and  Consumer Duty.      

Firms should expect:

• More structured explanations of how penalties are derived
• Increased emphasis on proportionality linked to firm size and misconduct impact
• Continued regulatory focus on governance and culture failings as a key aggravating factor

The direction of travel is clear: firms that can demonstrate strong governance and culture, early engagement and credible remediation will be better placed to manage enforcement exposure. Conversely, inconsistent approaches or weak documentation are likely to become more costly.