Glossary term
Administrative Penalty
Subject: Compliance and Regulation, Regulatory Supervision and Enforcement
Also known as: Monetary Penalty, Fine, Administrative fine
An administrative penalty is a financial sanction imposed directly by a regulator or government agency on a firm or individual for breaking rules, without going through a criminal trial or ordinary court case.
Explanation
Most financial and conduct regulators have the power to fine their own regulated firms. The process is usually: an inquiry or examination finds a breach, the regulator issues a notice setting out the allegations, the party can respond or ask for a hearing, and a decision is made with a stated amount. Appeals typically go to a tribunal or court. Amounts are set by statute and often scaled to the gravity of the breach, the firm's size, and whether it cooperated. Administrative penalties are faster and cheaper than prosecution, which is why they are the most common tool for supervisory breaches. Civil and criminal penalties come from courts, though some countries use the terms loosely or interchangeably. A published fine gives other firms a figure to weigh against the cost of fixing the same weakness themselves.
Example
Late transaction reports keep arriving from a broker, so the securities regulator issues a notice. The broker replies and accepts the facts, and the regulator imposes a fine of 2% of annual revenue, reduced because the broker fixed its reporting systems. The order is published on the regulator's website.
Not to be confused with
- Civil Penalty
- A civil penalty is usually ordered by a court after a case is brought. An administrative penalty is decided by the regulator itself.