Memories of the financial crisis have yet to fade and it is clear today’s regulators are taking a more robust approach than they used to. Their resolve can be seen most apparent in the high-profile cases resulting in jail fines and other sanctions, often connected to rate-rigging cases.
Most recently, the FCA banned Terry Farr, a former manager at brokerage Martins. The regulator said he had “acted dishonestly and lacked integrity” and was not “fit and proper” to perform any function in regulated financial activities.
Farr was found to have encouraged a UBS trader to believe he was willing to influence the Japanese Yen Libor submissions of other banks at the trader’s request. In return, the trader entered into so-called ‘wash trades’ with Farr.
These wash trades had no purpose other than to increase Farr and his colleagues’ bonuses and Mark Steward, executive director of enforcement and market oversight at the FCA, said:
“There was no legitimate reason for Mr. Farr to make these trades and his actions were motivated by greed. His actions mean he has no place in financial services.”
In April, two former Barclays traders were jailed – Colin Bermingham was sentenced to five years and Carlo Palombo to four years for conspiring to manipulate the Euribor (Euro Interbank Offered Rate) during the financial crisis. The men had been subject to a Serious Fraud Office probe and it was found that together with an ex-principal trader at Deutsche Bank, Christian Bittar, and a former Barclays director, Phillipe Moryoussef, had submitted false Eurobor submissions.
Their aim was to change the published rates and benefit their positions. Bittar was jailed last year for five years and Moryoussef for eight years although he was not present for sentencing having absconded from the UK in April last year. According to Lisa Osofsky, director of the SFO:
“These men deliberately undermined the integrity of the financial system to line their pockets and advance the interests of their employers. We are committed to tracking down and bringing to justice those who defraud others.”
Meanwhile, the case of former Citigroup and UBS trader, Tom Hayes, is also once again in the news. He was jailed for 14 years back in 2015 for dishonestly driving manipulation of Libor, although this was later reduced to 11 years. He is currently attempting to have his case quashed or retried in the Court of Appeal on the grounds of new evidence and also that his autism was not properly taken into account. Hayes has also recently been moved to an open jail and so his prospects at least of an earlier release are looking brighter, but he has still spent three and a half years in a maximum-security jail.
These are just some of the cases and while there have been acquittals and failures to bring cases to court, there have been successes too, and some significant fines imposed globally with a total of more than $10 billion and involving major players such as UBS, Deutsche Bank and Barclays.
Meanwhile banks must now prepare for an entirely new regime that it is hoped significantly reduce the risks of rate rigging. This month, the Bank of England told banks it would be scrutinizing their plans to move away from Libor since it will be retired at the end of 2021, as a result of regulatory pressure. Last year, the PRA and FCA sent banks a ‘Dear CEO’ urging them to assign responsibility for the change to a senior member of staff.
Alternative interest rate benchmarks such as as Sonia – to replace Libor – in the UK will be calculated based on actual transactions rather than banks’ submissions and so should prove resilient to manipulation and there are also US and EU equivalents. The Senior Managers Regime will also be used here to ensure tighter oversight and management responsibility. Yet more rate rigging trials will be held over the coming months and while the outcomes cannot be assured, regulators efforts are focused on drawing a line under this enormously costly wrongdoing.