What is required for financial penalties levied on firms by the FCA?

The requirement that financial penalties levied by the FCA may go up to 20% of a firm's revenue is significant because it aligns with the FCA's overarching goal of promoting compliance and deterring misconduct within the financial services sector. This percentage allows the FCA to impose penalties that are proportionate to the gravity of the offense and also reflect the scale of the firm involved.

By considering a percentage of revenue, the FCA ensures that larger firms face substantial consequences for misconduct, which acts as a greater deterrent compared to fixed fines. It also emphasizes that penalties should be related to the economic impact of a firm’s activities, thereby encouraging firms to adhere to regulatory standards. This approach ensures that the financial impact of a penalty aligns with the size and financial capacity of the firm, enhancing the effectiveness of regulatory enforcement.

In contrast, basing penalties solely on previous penalties would not reflect current violations adequately, while focusing only on the firm’s assets overlooks the broader financial context associated with the firm's operations. Similarly, applying fixed fines regardless of revenue would not take into account the size and financial health of the firm, potentially undermining the deterrent effect of the penalties.