Narratives of Misconduct: Emerging Trends in the Finance Sector

26 11 2015

As seen on this blog, the spectre of misconduct hangs over the finance sector. Even after seven painful years of conduct related revelations, the fall out from the global financial crisis (GFC) continues to haunt consumers and banking institutions alike. To conceal the low-point in public confidence, empty rhetoric and hollow buzzwords such as “social licence” and “real markets” reign supreme while regulatory spin seeks to reconstruct the common person’s trust in the system. Equally, to make themselves palatable to the public, market pundits can be heard trumpeting the mantra of “inclusive capitalism”. Yet an overall lack of ethics permeates corporate culture and a continuing tendency to act in a twisted way can still be gleaned from events. If anything, the deficit in trust is increasing because resort to outright cheating can still be evinced in numerous instances. For example, along with Deutsche Bank, Barclays is in the spotlight yet again after paying £320 million in forex manipulation fines to the New York Department of Financial Services (NYDFS) earlier this May; today, it has been fined £72 million by the Financial Conduct Authority (FCA) for poor handling of financial crime risks. Equally, The Review into the failure of HBOS Group highlights the legacy of negligence in holding the finance sector to account. In addition to everyday outrage arising out of economic inequality, public anger in the finance sector has risen to a crescendo because the nadir of people’s sufferings has been reached. As the National Audit Office finds, state funds totalling £1,162 billion have been injected into the UK banking system to save it from collapse.

The paradox, of course, is that unlimited funds have been made available to rescue recklessly managed and overexposed banks – concerned less with integrity and more with ways to exploit token regulation – whereas the neediest in society are being shunned from basic necessities such as healthcare, care services, welfare and all the savage cuts that accompany the long-term goal of shrinking the state to 36% of GDP. Even to those who earnestly believe in the free market, official viewpoints and narratives often directly contradict reality. Most of all, officials fail to acknowledge wholesale abdication of duties owed to citizens and their attitude exposes a continuing tendency to overlook capitalism’s corruption. In the roundup below, among other things, further light is shed on developments trending in the bullring of financial misconduct and the theoretical jargon used by regulators is paired up with a cogent critique – by O’Brien, Gilligan, Roberts and McCormick – of the trickle down reforms enacted to positively anchor the finance sector to society’s needs. Read the rest of this entry »

EURIBOR Manipulation: SFO Charges First Individuals

19 11 2015

George Osborne recently compared bad bankers to shoplifters and Mark Carney said that nobody at the Bank of England (BoE) “will be hugging a banker” – despite the crack down some “bad apples” remain. Two days later, on 13 November 2015, the Serious Fraud Office (SFO) issued the first criminal proceedings against 10 individuals accused of manipulating the Euro Interbank Offered Rate (EURIBOR). Deutsche Bank employees Christian Bittar, Achim Kraemer, Andreas Hauschild, Joerg Vogt, Ardalan Gharagozlou, Kai-Uwe Kappauf and Barclays employees Colin Bermingham, Carlo Palombo, Philippe Moryoussef and Sisse Bohart have all been charged with conspiracy to defraud in connection with the SFO’s ongoing investigation – announced on 6 July 2012 – into the manipulation of EURIBOR, the daily reference rate, published by the European Banking Federation, based on the averaged interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the interbank market, or euro wholesale money market. According to the SFO, criminal proceedings will be issued against other individuals in due course and the above defendants will make their first appearance at Westminster Magistrates’ Court on 11 January 2016. On the other side of the Atlantic, in the first US LIBOR trial, on 5 November 2015 a New York jury found former Rabobank employees Anthony Allen (global head of liquidity and finance) and Anthony Conti (a senior trader) guilty of rigging LIBOR and the pair face lengthy jail sentences.

Unlike Tom Hayes and Nav Sarao, Allen and Conti waived extradition to fight charges of conspiracy and wire fraud in America and they maintain their innocence despite having “left a paper trail a mile long”. Both men are British citizens and American prosecutors are adamant that the guilty verdicts are founded on “rock solid evidence”. Rabobank paid £662 million in LIBOR penalties in 2013 of which the Financial Conduct Authority (FCA) imposed £105 million. Both men were convicted in a district court in Manhattan on every count of conspiracy and wire fraud they faced and the outcome is a major triumph for American law enforcement officials in the US Department of Justice which brought charges against the Britons a year after the Dutch bank managed to achieve the $1 billion/£662 million compromise in October 2013 in relation to pending US and European probes. Read the rest of this entry »

Notable Economic Forecasts

19 11 2015

The UK has recently been dubbed by the Legatum Institute as “the third cheapest place in the world to start a business, far cheaper than the US or Germany.” The strength of the UK economy, which makes it one of the world’s most prosperous countries, is the underlying reason for creating successful businesses and opportunities for those seeking entrepreneurial roles. The Legatum Institute 2015 Prosperity Index, which is a league table ranking countries on the basis of economic success and a series of wellbeing indicators, ranks the UK (behind Germany) as the fifteenth most prosperous country in the world. (Norway has topped the ranking for the seventh consecutive year as the world’s most prosperous country.) However, as observed on this blog, misconduct in financial services is spiralling and no end to the conundrum appears to be in sight. In relation to trade, contrary to the findings of the Legatum Institute, the Institute of Chartered Accountants in England and Wales (ICAEW) has also found that business confidence in the UK is weakening and that investment is muted and exports are low.

For example, the Q4 2015 ICAEW/Grant Thornton UK Business Confidence Monitor results argue that though “still firmly in positive territory … the post-election honeymoon maybe over”. Exports and manufacturing have not been rebalanced which means there is continued reliance on domestic demand. In addition to the fall in business confidence after the post-election bounce, the Q4 2015 ICAEW/Grant Thornton report further found that exports are sliding below domestic sales, firms are restricting their budgets for R&D because they lack long-run confidence and skills shortages are rising – albeit wages are increasing steadily. The upshot is that business confidence is at its lowest level since 2013. Confidence in the services sector remains positive but is declining in the production sector. Read the rest of this entry »

Former Rogue UBS Trader Kweku Adoboli Loses Deportation Appeal

14 10 2015

In comparison to Tom Hayes (who got 14 years’ imprisonment and is appealing his sentence and conviction) and others being prosecuted for benchmark rigging, it is arguably quite scandalous that UBS rogue trader Kweku Adoboli (who was convicted of two counts of fraud and sentenced to seven years’ imprisonment) was released from prison after spending just a bit over three years behind bars for losing $2.5 billion in unauthorised trading. Ghana-born Adoboli – who travelled the world as a child – is said to be the son of a United Nations official/diplomat. Because of his misconduct, the Financial Conduct Authority (FCA) understandably wishes to ban Adoboli, who reckoned he had a “magic touch”, from being a regulated person in financial services. But now it has emerged that Adoboli was notified of his liability to deportation and has lost his appeal in relation to the decision to deport him from the UK. The 35-year old Ghanaian national, who has resided in the UK for 23 years but never got around to obtaining British nationality, was released from prison in June 2015 and reportedly found the immigration tribunal’s decision upholding his deportation to be “heartbreaking”. His rogue trading wiped off £2.7 billion ($4.5 billion) from UBS’s share price.

The media suggests that the former public school head boy and University of Nottingham graduate – holding a degree in e-commerce and digital business studies – plans to appeal the tribunal’s decision. It has been reported that the home office only seeks to deport individuals whose sentence is longer than four years (Immigration Rules, Part 13, Deportation and Article 8, para 398(a)) unless they are able to demonstrate otherwise. (A sentence of four years’ imprisonment or more means the person is a serious criminal and “very compelling circumstances” is an extremely high threshold. As a general principle, the greater the public interest in deporting the foreign criminal, the more compelling the foreign criminal’s circumstances must be in order to outweigh it.) However, under para 398(b) the deportation of a person from the UK is conducive to the public good and in the public interest where they have been convicted of an offence for which they have been sentenced to a period of imprisonment of less than four years but at least 12 months. It is common knowledge that anyone who has been convicted of an offence exceeding 12 months’ imprisonment is caught by “automatic deportation” because after the foreign national prisoners crisis the government legislated in Read the rest of this entry »

The LIBOR Trial: Episode Two

6 10 2015

Only recently former rogue UBS trader Tom Hayes, who accused the Swiss lender of distributing a manual on rigging LIBOR, became the first person ever to be convicted of benchmark rigging. He got 14 years’ imprisonment for eight counts of fraud and is appealing his conviction and sentence. However, episode two of the LIBOR trial is underway in London this week and a number of brokers thought to be acting in cahoots with Hayes are facing a jury in Southwark crown court for manipulating the interbank rate. These proceedings constitute a continuation of the long promised clean up (being overseen by the Serious Fraud Office) of rampant cheating in the banking and financial services industry that erupted in the aftermath of the global financial crisis. The sequel proceedings involve a batch of allegedly crooked individuals, namely Darrell Read (50), Colin Goodman (53), Danny Wilkinson (48) of ICAP (“a leading markets operator and provider of post trade risk mitigation and information services”); Terry Farr (44) and James Gilmour (50), formerly of RP Martin; and Noel Cryan (49, of Tullet Prebon). Their criminal trial began today and is expected to last 12 to 14 weeks and is likely to end early in the new year. All six men deny the charges and have elected to plead not guilty.

The new/emergent point in these cases is the part played by brokers, and not traders and submitters, in LIBOR manipulation. The half a dozen individuals identified above stand accused of conspiring with Hayes to rig LIBOR by suggesting numbers which were falsified and misleading. Darrell Read and Colin Goodman are said to have conspired with Brent Davies (also of ICAP) and Hayes. Terry Farr and James Gilmour are said to have conspired with Luke Madden of HSBC and Paul Robson of Rabobank to rig LIBOR. Farr also faces charges for conspiring with Hayes during his time at Citibank (which ultimately reported him over his cheating ways). Noel Cryan is accused of conspiring with UBS traders. Mr Justice Hamblen, a highly accomplished and respected judicial figure, will hear the case and it is being prosecuted by Mukul Chawla QC who saw to it that no loose boards were left dangling from Hayes’s coffin when he went down. Opening the case for the prosecution, Mukul Chawla QC argued that all six defendants conspired with Hayes and others and that Read the rest of this entry »

PPI Complaints Deadline: FCA Gives Consumers Until 2018

6 10 2015

Marking the removal of a dark stain on the financial services industry, the end of the Payment Protection Insurance (PPI) saga is finally in sight. A cut-off point to the debacle appears to be in the offing and the eagerly-awaited decision of the Financial Conduct Authority (FCA) – aiming to “rebuild trust in the retail financial sector” – about further intervention in PPI complaints has finally descended upon us. The PPI problem is said to have already cost the industry £20 billion and further payments up to £33.5 billion had been predicted by some studies because of the Supreme Court’s judgment in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 (though more conservative estimates place this at £15 billion). The FCA has decided to consult, by the end of the year, on setting a deadline by which PPI complaints need to be made “or else lose their right to have them assessed by firms or by the Financial Ombudsman Service.” Because questions hover over the influence of industry lobbying on the FCA, the Chairman of the Treasury Select Committee Andrew Tyrie MP said that the FCA should provide “reasons for its change of mind” over the deadline, one which may be linked to George Osborne’s new “settlement” for the City. The FCA wants to bring “finality” to the conundrum and wishes to prompt many consumers who want to complain, but have not yet done so, into action, resulting in them potentially getting redress sooner.

Consumers’ PPI problem, which generated billions in annual revenue for lenders, represents the UK’s costliest mis-selling episode – an ugly chapter in the history of the banks, one the industry surely wants closed for good. A flood of claims is expected because of the deadline and five leading banks have earmarked significant sums of money to put the controversy to rest. The sums set aside are Lloyds £13.4 billion, Barclays £6 billion, RBS £3.8 billion, HSBC £2.6 billion and Santander £800 million. Adding this to the misconduct bill of £200 billion from 2010-2014 (calculated by the Conduct Costs Project) takes the total to over £226 billion. However, some reports suggest that worst of the fines and penalties are already behind the banks; but only time will tell, you never know what’s around the corner. It has been reported that PPI complaints are declining with only 883,043 complaints Read the rest of this entry »

Navinder Sarao: ‘Flash Crash’ Trader’s Extradition Appeal Adjourned

29 09 2015

Like Tom Hayes who got burned for benchmark rigging – but is appealing both his conviction and his sentence – Navinder Singh Sarao also suffers from Asperger’s Syndrome (autism). People like them only see the world in black and white and are unable to see shades of grey. Hayes got 14 years which seems to be disproportionate given that UBS had distributed a manual on rigging LIBOR. But he managed to play the Serious Fraud Office and achieved his main objective, i.e. to dodge extradition to the US. Sarao faces a potential sentence in the US, on 22 counts, which may be as long as 380 years’ imprisonment. The charges against Sarao include wire fraud, commodities fraud, commodity price manipulation and attempted price manipulation. He is charged with using his trading algorithm to spoof markets. After being granted bail in August he got his second lucky break and his extradition hearing was adjourned for four months because of changes, which seek to vary the start date of the allegation of the criminal activity by six months, in the charges levelled at him. Sarao was arrested on 21 April 2015. The US authorities, led by the Department of Justice and the Commodities Futures Trading Commission (CFTC) believe that Sarao is a malevolent individual.

But then again the Americans are also still running Guantánamo Bay despite the Obama administration’s promise to close the prison which Lord Steyn famously described by as a “legal black hole”: see post on Shaker Aamer’s return after 14 long years of being held there without charge. Because he does not have a spouse or a child, Sarao was initially refused bail because of posing a “quintessential flight risk” but was finally released on 14 August 2015 by Westminster magistrates’ court when his bail was reduced from £5 million to £50,000. His extradition appeal was due to be heard this month. Hitherto attempts to postpone the hearing scheduled on 25 September 2015 were unsuccessful: see posts here and here. The reasons for postponing the extradition hearing are related to the fact that the US authorities are pressing further charges against him and want to back date his criminal activity by six months to January 2009. Sarao told that Westminster magistrates’ court that he did not consent to being extradited to America. Read the rest of this entry »


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