The Settlement Framework – An Overview of its Application in Practice

This means that, if the Settlement Committee is not satisfied with the representations of a licensee, the normal enforcement process will be pursued potentially with harsher sanctions than what would have been settled for.

The awareness session was aimed at shedding light on the practical application by the Commission
of its Settlement Framework published, on 11 December 2020. The Settlement Framework sets
out a method and procedure under which timely and proportionate enforcement outcomes can
be achieved in suitable cases by engaging with the settlement committee of the Commission
(Settlement Committee).

The Process under the Settlement Framework
Any member of the board of licensee or duly authorised member of senior management together
with the licensee’s legal adviser may attend settlement discussions.

The Commission has indicated that they recognise the benefit in differentiating between the
licensees who acknowledge regulatory breaches at an early stage and those who avoid doing so.
Settlement discussions can take place at any point provided it takes place before the issuance of
a decision notice. Discussions to reach a settlement are made on a ‘without prejudice’ basis and
early acknowledgement by a licensee of its potential regulatory breach are considered favourably.
A graduated penalty reduction scheme is applied with a reduction up to an administrative penalty
on a sliding scale depending on the timing as to when the settlement is reached.

Where the settlement is reached at any stage before the matter is referred to the enforcement
committee of the Commission (Enforcement Committee), a discount of 30 percent can be obtained on the administrative penalty. The discount is reduced to 10 percent when settlement is reached after the referral to the Enforcement Committee but before the issue of a warning notice. A discount of only 5 percent is available if the settlement is reached after a Warning Notice is issued.

Relevant Factors in Assessing the Proposal for Settlement
In considering the substance of any proposal for settlement by a licensee, the Settlement
Committee may take into account the following factors:

• the nature, seriousness and impact of the conduct or suspected contravention that is the
  subject of the proposed settlement and whether such contravention is ongoing;
• the role played by the licensee in the conduct and/or suspected contravention that is the
  subject of the proposed settlement;
• whether a potential settlement, if reached, will achieve an effective outcome for those
  (such as consumers or investors) who have been adversely affected by the conduct and/or
  suspected contravention;
• whether the licensee will comply with the terms of any settlement agreement reached;
• the disciplinary record and compliance history of the licensee;
• the prospects of a swift and appropriate resolution of the matter; and
• whether the proposed terms of settlement delivers credible deterrence.

In weighing the sanctions to be considered in the settlement discussions, the Commission is
required to follow the paramount principles of its enforcement policy which are: effectiveness and
efficiency, fairness, transparency, proportionality and consistency. In particular, licensees would
be well advised to stress during the discussions and/or written submissions that the enforcement
manual of the Commission (Enforcement Manual) provides that the powers (of the Commission)
are to be exercised judiciously and proportionately and in a manner which does not disrupt or
interfere in the business activities of licensees beyond what is reasonably necessary for the
achievement of the Commission’s regulatory objectives.

Purpose of the Settlement Procedure
The objective of the Commission is to ensure the settlement of enforcement disputes in a manner
which is consistent, proportionate, effective and in the public interest. Licensees should seek to
address a maximum number of deficiencies identified by the Commission before the settlement
discussions are actually scheduled so that they can come to this discussion with a clean slate.
Promoting compliance is the key regulatory objective behind the application of disciplinary
sanctions and enforcement policies by the Commission. Licensees should be mindful that the
Commission will be looking for formal high-level commitments, from the management team of
the licensees, that they are fully dedicated to maintaining a compliance culture beyond fixing any
breaches which have already been identified.

Possible Sanctions which could Arise from the Settlement Procedure
The possible sanctions which can come out of settlement discussions potentially include those
within the powers of the Commission under the Financial Services Act 2007 which can be, public
censures, disqualification of the licensee or an officer, revocation of a licence (unlikely but
possible) and most likely, private warnings or an administrative penalty. However, given that
settlement agreements remain confidential between the Commission and the relevant licensee,
there is typically no public record of the sanctions (unless the sanction includes a public censure)
which the Commission will typically impose.

Should you have any queries or need any advice with respect to this legal alert, please do not hesitate to contact Iqbal Rajahbalee.

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Contributors
Vipin Jeerakun, Associate

Neelesh Kowlesser, Associate