UK FCA consults on updates to DEPP: CP26/19 at a glance

Raising the minimum penalty for serious market abuse

DEPP 6.5C sets out the five-step process which the FCA must follow when calculating penalties to be imposed on individuals for market abuse, which includes insider dealing, unlawful disclosure of inside information and market manipulation. (Note that in CP26/19 the FCA proposes that insider dealing also includes using inside information as prohibited by the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026 (the “Cryptoasset Regulations”) – see below under Market Abuse Regime for Cryptoassets.)

At step 2 of the process, the FCA assesses the seriousness of the misconduct on a scale of 1-5 (with 5 being the highest), which informs the disciplinary element of the penalty. Cases of market abuse which the FCA assesses at seriousness level 4 or 5 - which includes most cases of deliberate market abuse - are currently subject to a minimum penalty of £100,000 (which may subsequently be reduced for proportionality, mitigating factors, settlement and serious financial hardship (SFH) but, even with any such reduction, the minimum is intended to ensure that any penalty in the most serious cases has sufficient deterrent impact).

The FCA proposes to increase this figure to £150,000, representing a 50% uplift in line with inflation since the figure was first introduced in March 2010.

The FCA considered three potential inflation indices: (i) the Retail Price Index, (ii) the Consumer Price Index (“CPI”), and (iii) CPI plus housing-related costs (“CPIH”) — and opted for CPIH, which the Office for National Statistics regards as the most comprehensive measure. The FCA justified this choice on the basis that housing-related costs are likely to be borne by the individuals it takes action against for market abuse.

Critically, the FCA also proposes to adjust the figure biannually on 1 May by reference to the percentage change in CPIH, rounded to the nearest £10,000, to ensure it keeps pace with inflation. The minimum penalty applicable will be the figure(s) in place when the market abuse occurred.

The FCA’s policy rationale for maintaining a robust minimum penalty for market abuse is rooted in deterrence. The FCA identifies several reasons why market abuse requires "particular and focused deterrence": it harms consumers and undermines market confidence irrespective of personal profit; adequate redress from perpetrators is often impractical; perpetrators often work outside the FS-regulated sector where the FCA's other powers do not apply; and clean markets are essential for investor confidence, growth, and innovation.

Clarifying deterrence uplift for wealthier individuals

The FCA's second deterrence-related proposal addresses a perceived inconsistency in its policy on uplifting penalties to reflect individuals' wealth. DEPP 6 currently contains two separate provisions: one for market abuse cases, which permits an increase where a penalty "may not act as a deterrent in light of the size of the individual's income or net assets," (DEPP 6.5C.4) and a second general provision, which only references increasing penalties where an individual "has a small or zero income but owns assets of high value" (DEPP 6.5B.4).

The FCA notes that the wording in DEPP 6.5B.4 has sometimes been interpreted to mean the regulator will only uplift for wealth where the individual's income was minimal or non-existent. To eliminate this ambiguity, the FCA proposes to replace this with the same wording as in DEPP 6.5C.4.

The FCA says that the change will make clear that it may increase a penalty in all cases where it may not act as a deterrent given an individual’s income or net assets. The FCA emphasizes that this reflects its current approach and is intended to improve clarity and transparency.

Treatment of deferred and conditional income

In addition to the seriousness of the misconduct and the length of the period of misconduct (the “misconduct period”), the FCA also refers to the individual’s income earned from their role in the misconduct period in order to calculate the disciplinary element of the penalty. In addition to salary, the FCA takes into account shares and bonuses received. However, complications arise with bonuses, share awards, and other deferred remuneration that may be earned during the misconduct period but received afterwards, or received during the misconduct period but which relate to a time before the misconduct period.

The FCA proposes changes to how it calculates an individual's relevant income for these purposes, which follow the approach taken by the Upper Tribunal in the 2025 decisions of Staley v FCA and Gonzalez v FCA. The FCA proposes to amend DEPP 6 to make clear that relevant income will include benefits received after the misconduct period but earned during it, and income that is uncertain at the time of the penalty calculation but which may be estimated or adjusted for likelihood of receipt. Conversely, benefits known to be irrecoverable will be excluded, as will benefits received during the misconduct period but earned in a prior period.

The FCA also proposes to clarify that it may still increase for deterrence a penalty calculated by reference to relevant income even if that income was reduced by the firm as a consequence of the misconduct in question.

Updating the SFH thresholds

When deciding on the level of a penalty, the FCA may reduce the proposed penalty where payment would cause the individual SFH. DEPP 6.5D sets out when and how the FCA will consider a reduction. In essence, the FCA will calculate whether an individual’s income and capital will fall below certain thresholds if they were to pay the penalty over three years. If they do, the FCA will adjust the penalty accordingly.

The FCA proposes to increase its current SFH thresholds from £14,000 to £21,000 for net annual income, and from £16,000 to £24,000 for capital. The FCA considers that these new proposed thresholds better reflect the point at which an individual would experience SFH.

As with the market abuse minimum, the proposed uplift is approximately 50%, reflecting CPIH inflation since the original figures were set in 2010. And, again, the FCA proposes that these figures are automatically adjusted every two years on 1 May using CPIH, and rounding up to the nearest £1,000. The FCA will use the threshold(s) in place at the time it gives an individual a decision notice relating to a penalty.

Impact on other occupants when considering capital

The FCA will normally regard as capital the equity that an individual has in the home in which they live, but will consider whether the sale of the property may have an “exceptionally severe” impact on other occupants of the property. The FCA proposes to remove the requirement that the impact of a property sale on other occupants be limited to cases which are "exceptionally severe", reflecting its existing practice of considering any representations made by such persons.

Disgorgement and SFH 

The FCA also proposes to expressly state that the disgorgement element of a penalty - the amount representing the financial benefit of misconduct - is not subject to reduction for SFH, even where payment of this will cause the person to experience SFH. DEPP 6 states that a settlement discount does not apply to the disgorgement part of a penalty but does not expressly set this out for SFH, which the FCA proposes to rectify with this amendment. The FCA says that this change reflects its practice.

Settlement decision-makers

When deciding to take enforcement action in settled cases, entering into a focused resolution agreement or for partly contested action, decisions must be taken by two members of staff, known as settlement decision makers (“SDMs”). At least one of the SDMs must be a director or acting director or above, and the other at least a head of department - and at least one of them will not be from the Enforcement and Market Oversight Division (“EMOD”).

The FCA's standard practice is that at least one of the SDMs is an Enforcement Director, who has expertise in the enforcement process, and the other is from the area that referred the relevant investigation, with technical expertise in the subject matter.

The FCA proposes to amend DEPP 5 to allow both SDMs to come from the EMOD in cases referred to enforcement from the Market Oversight Directorate within that Division. If that is the case, both SDMs can be from EMOD provided that one is from Market Oversight.

This addresses a constraint in the way which the FCA has been structured, meaning that, in cases involving, say, market abuse or listings misconduct, the FCA may not have the benefit of an SDM with technical expertise in the subject matter.

Market abuse regime for cryptoassets

The Cryptoasset Regulations provide the foundation for a new regulatory regime for public offers of qualifying cryptoassets and their admission to trading on cryptoasset trading platforms, which includes a Market Abuse Regime for Cryptoassets.

At present, market abuse is largely defined in DEPP by reference to the Market Abuse Regulation. The FCA proposes amendments to make it clear that its penalty framework in DEPP 6 will equally apply to cryptoasset market abuse and that using inside information will also include using inside information as prohibited by the Cryptoasset Regulations. The FCA will make necessary changes to relevant terms in the Handbook glossary.

The FCA also proposes minor changes to DEPP which identify the relevant decision-makers for its new powers under the transitional provisions of the Cryptoasset Regulations.

Comment

Taken together, the proposals in CP26/19 represent a carefully calibrated effort by the FCA to modernize its penalty framework. The dominant themes are inflation adjustment, consistency, transparency, operational flexibility, bringing theory into line with practice and updating the framework to accommodate the new regulatory cryptoasset regime.

Those advising individuals subject to FCA enforcement action should closely review these proposals, particularly the raised minimum penalty for market abuse deterrence and the revised treatment of deferred remuneration, both of which may materially affect penalty outcomes.

Authored by Daniela Vella.