Penalises play on words that is over-subtle
I believe the answer is:
finespun
'is over-subtle' is the definition.
(I've seen this before)
'penalises play on words' is the wordplay.
'penalises' becomes 'fines'.
'play on words' becomes 'pun' (synonyms).
'fines'+'pun'='FINESPUN'
'that' acts as a link.
(Other definitions for finespun that I've seen before include "Over-subtle" , "Highly subtle" , "Excessively subtle" .)