Financial groups count cost of crackdown by UK regulator Large financial groups were ordered to shell out more than £160m in compensation to customers in 2011 as the UK Financial Services Authority cracked down hard on mistreatment of retail investors by some of the UK's best-known firms. The compensation payments dwarfed the £55.7m in corporate fines imposed last year by the City watchdog on firms including HSBC, Barclays and Royal Bank of Scotland, and marked a huge increase from 2010 when corporations paid £62m in redress and £79m in FSA fines, according to research by the Freshfields law firm. The watchdog handed out its largest ever retail fine of £10.5m in 2011 to HSBC, for mis-selling investment bonds to elderly customers, and ordered banks to pay at least £1m in compensation in at least five cases. Barclays led the league table for redress when it was fined £7.7m and ordered to pay £59m in compensation for failings in the way it sold funds labelled "cautious" and "balanced" to retail customers. When fines against individuals are included, the FSA imposed just over £66m in fines in 2011, the second-highest total in its history behind 2010"s £89m. Some of the largest penalties resulted from industry-wide crackdowns on wealth management firms and companies that failed to segregate client assets from company money. We have had some significant retail fines against . . . big firms that should know better. The big players have the potential to damage larger swathes of the community than the small firms," said Tracey McDermott, acting FSA enforcement director. While the FSA's fines still lag behind those imposed by US regulators, the UK watchdog has followed the American lead in going after very large companies and stepping up its overseas reach. Andrew Hart, Freshfields partner, said the "staggering outlay" for redress undershoots the total cost to companies. "When you take into account that there are other penalties imposed by the FSA, such as the requirement to overhaul IT systems, bring in new teams to assure new processes are implemented or change operational systems, the "hidden" costs here can easily dwarf any obvious costs. This can often be the real driver behind any settlement," he said. Lawyers said they expect the numbers of cases and the size of fines to stay high as the FSA prepares to be broken up into two new regulators in 2013. The enforcement division will move en masse to the new Financial Conduct Authority and may be given new powers to make its cases public at an earlier stage. The FSA is also preparing to go to trial in three large criminal matters early in 2012. "The proportion of higher fines is creeping up but the FSA is increasingly investing resources in more complex investigations that, though slow to complete and not necessarily involving such high headline fines, are ultimately important in policing the markets," said Angela Hayes, partner at law firm Mayer Brown.