Dip in UK financial misconduct fines can't mask upward trend

* Bank fines in UK set to top 900 mln stg this year

* Last year's 1.5 bln stg swelled by blockbuster cases

* 2015 penalties still 13 times level of 2011

* Barclays worst offender after record 284 mln stg penalty

* More individuals fined, potential to rise further

By Steve Slater

LONDON, Dec 8 (Reuters) - Fines dished out to misbehavingbanks in Britain are set to top 900 million pounds ($1.35billion) this year, bringing a bumper windfall for somecharities and further evidence of a shift nearer the U.S. modelof severe penalties to deter wrongdoing.

Britain's financial watchdog has fined banks, insurers,asset managers and individuals 899 million pounds so far andthough the final tally will almost certainly be below lastyear's record 1.5 billion pounds, it will still be the secondhighest ever and more than 13 times the total in 2011.

The dip from 2014 can be attributed to last year's 1.1billion pound settlement with five banks for rigging foreignexchange rates and lawyers said there remains a clear upwardtrend as Britain moves nearer to United States-style punitiveaction.

"Those blockbuster cases were always going to result in hugepenalties. But leaving those aside, we're starting to see muchbigger penalties in other areas," said Marcus Bonnell, counselin the regulatory team at law firm RPC.

RECORD FINES

Barclays was fined 284 million pounds in May forfailing to stop its traders manipulating foreign exchangemarkets, the biggest fine imposed by the UK regulator.

Lloyds Banking Group was slapped with the biggestretail banking fine of 117 million pounds in June formistreating customers sold payment protection insurance. AndBarclays was last month fined 72 million pounds for not makingproper checks on wealthy clients, the biggest fine for such failings.

There have also been hefty fines for failures relating toclient assets, conflicts of interest or transaction reporting,including a 126 million pound penalty for Bank of New YorkMellon and an 18 million pound hit for Aviva Investors.

Accountancy firm EY estimates that the average UK fineimposed on firms has almost trebled in the past two years.

John Smart, head of EY's UK fraud investigation and disputeservices team, said that recent scandals and more politicalpressure mean that regulators are now more willing to pursuecases that may once have been considered too difficult.

There has also been a significant shift in the treatment ofindividuals, with 20 fined so far this year, compared with 13last year.

Numbers could continue to rise, lawyers said, noting newrules that make senior management more accountable for anymisconduct, while scores of enforcement staff will no longer beconcentrating on the FX and rate-rigging investigations thathave tied them up for several years.

"With the freeing up of resources and the introduction ofthe senior managers regime you could see an increase in thenumber of cases against individuals," RPC's Bonnell said.

The biggest UK fine on an individual this year was a 2.7million pound penalty for Alberto Micalizzi, a former hedge fundCEO who tried to conceal losses from investors.

JAIL TIME

UK courts are also taking a tougher stance, illustrated bythe 14-year sentence given to Tom Hayes for rigging benchmarkinterest rates. That matched the time being served in the UnitedStates by former Enron CEO Jeff Skilling for being party to oneof the biggest ever corporate frauds.

The British government, meanwhile, has gained a chunkywindfall thanks to a 2012 law change that diverted almost allfine income to the finance ministry rather than the financialregulator and is using some of the money to support good causes.

The watchdog previously used fine proceeds to coverregulation costs, but it was deemed politically unacceptable ifbig misconduct fines continued to cover costs that were meant tobe shared by companies within the sector.

The government has received 2.9 billion pounds fromfinancial industry penalties since the law change and theregulator keeps about 40 million pounds a year to coverenforcement costs.

The finance ministry has said all Libor-related fines wouldgo to support military charities and other good causes. It saidon Tuesday that 547 million pounds has been allocated so far.Recipients include a D-Day Museum in Portsmouth and injuredsoldiers and veterans aiming to compete at next year's InvictusGames.

The ministry said that 1.1 billion pounds of FX-relatedfines is being used to fund medical and community healthcarefacilities and 227 million pounds is to support apprenticeships.($1 = 0.6678 pounds)

(Additional reporting by Kirstin Ridley; Editing by DavidGoodman)