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It is supposed to deter boats from overfishing their quota for a particular species/catching fish that are too young by penalising them financially for landing them. They obviously don't know what they've caught till the take their nets in so any fish that are too small/wrong species have to be thrown back, most of the time they are dead... this seems stupid, and is, but is in theory to stop people making money out of illegally caught fish and make more of an effort not to breach quotas etc.
its a stupid system, especially when Faroese boats are now just using huge aqua hoovers to suck fish into their boats indiscriminately and refusing to abide to any notion of quotas anyway.