Britain's Financial Services Authority has decided to push ahead with a controversial new policy on compliance penalties, despite concerns that it is too harsh and will damage the FSA's relationships with regulated firms.

The new framework, which takes immediate effect, could lead to the fines imposed by the FSA tripling in some cases, the regulator said.

The idea behind the new policy is to link the size of fines more closely to the income a firm generated from offending behavior. It is also aimed at making the process of calculating enforcement penalties more transparent, as a means of deterring firms from breaking the regulator's rules.

A firm could now face a fine of up to 20 percent of the revenue it generates from a rule-breaking product or business area, based on all the revenue it generated while in breach of the rules.

Individuals could be fined up to 40 percent of their salary and benefits, including bonuses. Those involved in serious market abuse will have to pay a minimum fine of £100,000 ($150,760).

An FSA policy paper outlining the changes,  “Enforcement Financial Penalties,” accepts that many in the financial industry opposed its new approach. They argued that it gave the regulator too much discretion, that there was no need to increase the level of penalties and that higher fines wouldn't deter rule-breakers anyway.

There were also concerns that a tougher stance on fines would damage the “open and cooperative relationship” that firms are meant to have with the FSA and lead to more disputes between firms and the regulator.

But the policy paper states: “While we recognize that more of our decisions may be challenged, we believe that any effects this may have on our resources will be outweighed by ongoing cost savings as a result of increased compliance.”

Margaret Cole, FSA director of enforcement and financial crime, said: “Despite industry opposition we have decided to implement these proposals as we believe enforcement penalties are a powerful tool to help change behavior in the industry.”

She said the regulator had “repeatedly seen breaches in particular areas where insufficient account has been taken of previous enforcement action.”

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