September 28th, 2012 (updated Sept 29th, 2012)
In the days after the Libor scandal erupted with the Barclays settlement of June 27th, there was little doubt about it. Banks including Barclays had been systematically engaged in the rigging, and attempts to rig, the Libor interbank rates as well as other aspects of the financial markets in their favour, and to the detriment of everyone else. There was widespread revulsion and disgust at the bankers’ behaviour. Given the belief that Libor is one of the biggest frauds in history, there was and remains an expectation that those responsible should be criminally prosecuted and, if found guilty, jailed.
Business secretary Vince Cable called for a criminal investigation, and chancellor of the exchequer George Osborne said: “Fraud is a crime in ordinary business; why shouldn’t it be so in banking?” His clear implication is that fraud was committed at Barclays – a serious allegation from Britain’s finance minister. Lord Blair, the former Metropolitan Police commissioner, said there was evidence to suggest that Barclays employees had been engaged in conspiracy to defraud. In an interview with Sky News’s Dermot Murnaghan, Blair said:
“There have to be police inquiries into this. Anybody, the youngest detective, would say this is conspiracy to defraud. It can mean nothing else. And therefore someone has to launch a criminal inquiry into this behaviour.”
Twelve weeks on, it was with some dismay and disappointment that I listened to an interview given by FSA’s head of conduct Martin Wheatley this morning.
In a weak performance on BBC Radio 4’s Today programme at 7.50am, Wheatley displayed his bias when he bridled at the suggestion that anyone in the financial services sector might be described as “thieves”. Early in the proceedings, the interviewer Justin Webb sought confirmation that those who commit ‘white collar’ crimes will go to jail. Wheatley seemed really uncomfortable with such a suggestion and said it would really only be relevant for those who commit “the most extreme fraud”. This seemed a decidedly odd thing for Wheatley, a former Hong Kong regulator who is chief executive designate of the new Financial Conduct Authority, to say.
But it was Wheatley’s remarks at the end of the interview that I found the most dispiriting. Asked whether bankers responsible for having fraudulently ripped off their customers, with for example with payment protection insurance (PPI) scandal, should be jailed, Wheatley came over all defensive. (See this earlier blog — Britain ignores this epidemic of financial crime at its peril — for an explanation of what bankers and regulators euphemistically descrtibe as “misselling” is, in fact, fraud).
Justin Webb: “And in terms of the criminal sanctions you have mentioned, you have been very clear about the criminal sanctions you want in the case of fixing Libor but of course there are all sorts of other areas as well — such as the misselling of payment protection insurance that’s been going on, etc. Would you like to see the extension of criminal prosecutions in the future, and criminal sanctions in those areas?”
Martin Wheatley: “We have criminal sanctions available for various forms of market abuse, insider trading, I don’t think…”
Webb: “But nobody is going to prison as a result of the payment protection insurance scandal.”
Wheatley: “No but they’re paying the money back and the most important thing at the moment….”
Webb: “Yes but other thieves in other areas, other people who nick money in other areas, don’t just pay the money back, they go to jail don’t they?”
Wheatley: “Thieves is obviously a strong term. Our view is that this is inappropriate conduct; that is quite a long way short of fraud.”
Now its late on a Friday evening so I ‘m going to hand over the baton to my friend and colleague, Rowan Bosworth-Davies. What follows is an edited version of the piece he published on Rowan’s blog earlier today. Rowan is a former Scotland Yard fraud squad detective and former head of investigations and Fimbra (one of the predecessor bodies of the FSA).
While being interviewed on the Today Programme this morning, Martin Wheatley proved that he was going to be no more effectual as a lead regulator than any of his spineless predecessors.
How can we possibly have any faith in a man who is supposed to regulate one of the most criminogenic markets in the world, when he manifestly demonstrates that he understands so little about the criminal law, or the public attitude towards the organised criminal cesspit that the UK financial sector has become?
This is exactly the same kind of twitchy, lily-livered, fearful attitude towards penalising City of London crime that has bedevilled the regulation of our financial markets for years; and which has made the Square Mile a byword for every kind of skulduggery, thievery, fraud, money-laundering, institutionalised tax evasion, and general cut-purse activity.
It is this pathetic approach towards financial wrong-doing that is ensuring that the American regulators do not trust us, and who are increasingly being forced back on their own resources to go after the global criminals who find such an easy home in London.
For the record, Mr Wheatley, any mis-selling activity is nothing less than institutionalised fraud at its widest scale. That is why this kind of inflated criminality had to be called ‘mis-selling’ in the first place because the government just did not have the moral courage to call it by its real name, ‘criminal fraud’, for fear of what such a description would do the future of the London market.
When an industry sector is forced to set aside in excess of £10 billion to recompense victims of such crimes, you can hardly call this simply ‘inappropriate conduct’!
In these few short words, Wheatley sent a loud message to every bankster, con-man, huckster and snake-oil salesman that, under his regime, it’s business as usual. He gave every single one of them a ‘get out of jail card free’ and none will have any illusions but that they are free to carry on defrauding ordinary people out of money they can ill afford to lose on some frolic dreamt up by the organised mafias who run Britain’s banks.
The interview was an exercise in the ‘same old, same old’! It contained all the tried and trusted shibboleths, it talked about the need for new processes and procedures to help regulate the Libor market. It talked about the importance of the Libor structure and what needed to happen to make sure it was never abused again.
Justin Webb, the interviewer, repeatedly tried to get Wheatley to focus on the question of using the criminal law to bring pressure on the bad guys, and to contemplate using prison as a real deterrent.
Wheatley squirmed, wriggled, demurred and obfuscated. He tried to avoid answering the questions about prison sentences. Eventually, grudgingly, he agreed that prison might be a suitable option for sentencing, but a long way after fining and banning from the industry, and then only in the cases of what he called ‘extreme fraud’!
Quite what this man thinks manipulating the Libor market is, and has been for many, many years is, if it isn’t extreme fraud, I am not certain. How much more extreme does it have to become? He admits that Libor is very important as a price-setting mechanism, he admits its outcomes have impacts on many areas of financial standards, but for some reason, he is not prepared to see that this activity might fall within the area of ‘extreme fraud’. Why does he think the Serious Fraud Office is conducting an investigation if such activity is not extreme fraud?
He clearly does not understand that the only way to regulate a financial market in a way that the people who abuse it really fear, is to make them understand that if they break the criminal law, they will be arrested, charged and tried at the Central Criminal Court.
On one issue, Wheatley is quite clear. He doesn’t want to have any responsibility for supervising the control of the new Libor regime. Oh that doesn’t mean he hasn’t got all kinds of plans and schemes for it, lots of good bureaucratic plans are afoot. This is what Wheatley himself had to say about it in his speech later this morning:-
“Firstly, reforming the current framework for setting and governing Libor. This will include how banks submit data, and whether actual trade data can be used to set the reference rate; the governance of Libor; and whether the setting of Libor should be brought into statutory regulation.
“We will also look at alternative rate-setting processes and the financial stability consequences of a move to a new regime and, how a transition might be appropriately managed.
“The second area we’ll look at how we work out the best way to tackle abuse. This will consider the scope of the UK authorities’ civil and criminal sanctioning powers to deal with the type of misconduct we’ve seen. We’ll also look at whether individual persons in banks with a role in Libor setting should be subject to prior approval by the regulator.
“And finally, we’ll look at other areas where price-setting mechanisms are used in financial markets and whether we need to make policy changes. We’ll make provisional recommendations designed to inform the work on benchmark reform being considered globally…”
Well, that’s alright then! Lots of good processes and procedures there for the regulator to get its teeth into. But who is going to oversee it all? Not the British Bankers’ Association, that’s for sure, and this is probably a good thing. The BBA in recent years has been little more than the talking shop for the various banks’ interests, a lobbying group, bought and paid for by its members.
On Radio 4 this morning, Wheatley said he hoped that someone would step forward to want to oversee the new LIBOR structure. Asked why the FCA was not the right agency, and you could almost feel his anxiety to dispel that suggestion right away.
No, he said, we are regulators, not market practitioners. He wants to oversee the actions of others, but just as with his predecessors in title, he doesn’t want to have any responsibility for ensuring that the new structure works properly. He will say how it should work but he doesn’t want to be placed in direct charge of it.
Of course not, that way he might end up being judged on his effectiveness as a regulator and that would never do, because the public might think he wasn’t up to the job if he failed in some way!
Just like the SIB and the FSA, the new FCA doesn’t want to be given any responsibilities by which it can be measured by empirical standards. This is the prerogative of the whore, power, but without any responsibility!
Listening to Wheatley this morning, I felt the same sinking feeling I experienced when I heard Hector Sants telling the financial markets to be “very afraid” of him, or when I heard Adair Turner turning a simple explanation into three paragraphs of complex gobbledegook!
We are back to square one again, with a regulator that has no desire to be held responsible for its actions; which cannot understand why stealing people’s hard-earned money is not a crime when it is done by a bank; which has no stomach for using criminal sanctions to put errant executives behind bars; and which wants to do a lot of talking and liaising and exchanging information, and travelling to foreign conferences, but absolutely nothing about putting the people who have given the London market its reputation as a financial cesspit, in jail. God help us all!
Rowan Bosworth-Davies is a former Metropolitan Police fraud squad officer and a former head of investigations at City regulator Fimbra (one of the predecessor bodies of the Financial Services Authority) who now works as a specialist financial crime consultant. He blogs at Rowan’s Blog. The full blog about Wheatley’s lack of appetite for rooting out financial crime is titled Martin Wheatley just handed the banksters and their capos a get out of jail card. The entire eight minute in interview with Martin Wheatley is available on the BBC website.