Benchmark Manipulation and Corporate Crime: Insights on Financial Misconduct

22 03 2016

In the second innings things were different. The reverse swinging old ball meant that the Serious Fraud Office’s openers came back to the pavilion with a duck and those charged with misconduct and put in the dock began to eye up the opportunity of scoring a hat trick. Coupled with the reduction in Hayes’s sentence by the Court of Appeal (Lord Thomas of Cwmgiedd CJ, Sir Brian Leveson PQBD and Gloster LJ, see here) on the ground that he was not in a managerial position and suffered from autism, the fact that Darrell Read, Danny Wilkinson and Colin Goodman, Noel Cryan, Jim Gilmour and Terry Farr were found not guilty of LIBOR manipulation casts doubt over future successful prosecutions in benchmark rigging cases. Hamblen J directed the jury to convict the brokers if they had played a “significant” role in helping him rig LIBOR. Apparently they had not. The Court of Appeal’s refusal to grant Hayes permission to appeal to the Supreme Court may provide limited comfort to the SFO but the acquittal of the above brokers charged in the second “sham” LIBOR trial has reversed the momentum gained by the authorities. The brokers’ exoneration exposes the SFO to the accusation that it has been wildly swinging a sledgehammer to smash a nut. So, having tasted blood after Tom Hayes’s conviction, taking a gung-ho approach to weeding out the City’s “bad apples” seems to have backfired because the clever brokers had simply let Hayes believe whatever he wanted.

According to the brokers, the SFO “didn’t investigate it properly and didn’t listen”. Despite big increases to its funding, claims that the SFO’s director David Green QC has overseen a “string of successes” and that the extension of his contract for two years is a “boon” for justice are proving to be totally without merit. These days it is the SFO which is in the dock and Tom Hayes’s tormented father Nick Hayes used the opportunity to defend his son and said: “Today Tom Hayes stands tall. He refused to testify versus the LIBOR brokers and paid the price … I’m proud of him.” Of course, measured against such poor performance, the fact that the embattled agency wants a top-up of £21.5 million in emergency funds for “blockbuster” probes to bolster its dwindling fortunes amounts to expecting rewards for failure; it is completely unjustified. Read the rest of this entry »





The New Governor From Canada

28 11 2012

Canada’s Mark Carney has had a long and successful career in global banking, finance and regulation. Yet prior to George Osborne’s announcement – just two days ago on 26 November 2012 – that Carney would replace Mervyn King (upon his retirement on 30 June 2013), the Canadian who has become the first foreigner to rise to the position of the Governor of the Bank of England was virtually unknown to the Brits. But Carney, who relishes a challenge, has had a very distinguished career and is currently the Governor of the Bank of Canada and is credited with guarding the Canadian economy against the worst of the global financial crisis. And, since last year, the celebrated regulator with a Goldman Sachs’ background, has also served as the head of the Financial Stability Board: a role which requires his oversight in respect of the regulatory agenda of the Group of 20 leading industrialised and emerging economies.

Here are some of the thoughts that Carney has shared with the media:

  • Global systemically important banks have been identified and will be subject to higher capital requirements and mandatory recovery and resolution plans. This framework is also being extended to other systemic financial firms. Read the rest of this entry »




Libor: Implementing Wheatley

28 11 2012

In the wake of this summer’s scandalous events in the banking sector, the UK government wants to demonstrate that it is acting swiftly to implement the recommendations made by Martin Wheatley – CEO designate of the Financial Conduct Authority – in respect of the London Interbank Offered Rate (“Libor”). To this end, HM Treasury has made clear through Greg Clark (the Financial Secretary) that “the government is committed to restoring global confidence in this important benchmark.” New criminal offences are envisaged for attempted manipulation of Libor and the treasury is looking into bringing other benchmarks within the scope of regulation. Earlier posts on Libor on this blog can be recalled as (1) Treasury Committee on Libor; (2) Libor Needs Strengthening; and (3) Wheatley Review on Resetting Libor .

Some of the proposed changes are set out in the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2013 (“the 2013 order”) which seeks to amend existing legislation contained in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 – (“the 2001 order”) specifying the types of activities and investments for the purposes of the Financial Services and Markets Act 2000 (“the Act”). Read the rest of this entry »





Wheatley Review on Resetting Libor

30 09 2012

On 28 September 2012, the Wheatley Review of Libor: final report was published and a ten-point plan to reform the ailing benchmark is on the cards. See earlier posts on Libor on this blog here and here. Moreover, responses to the initial discussion paper are available here, here and here. The treasury has explained that the government is studying the review’s recommendations and intends to respond to the review by introducing “any necessary legislation” in the Financial Services Bill currently under consideration by the House of Lords.

In his speech Pushing the reset button on Libor, Martin Wheatley – Managing Director of the Financial Services Authority (“FSA”) and Chief Executive-designate of the Financial Conduct Authority – agreed with the Economist’s view that Libor is simply the most important figure in global finance: its centrality in banking law cannot be overstated.

The threefold terms of reference for the review included (1) reforming the current framework for setting and governing Libor (2) determining the adequacy and scope of sanctions to appropriately tackle Libor abuse and (3) whether similar considerations apply with respect to other price-setting mechanisms in financial markets. Read the rest of this entry »





Shareholder Democracy, Corporate Governance and Future Reform

25 09 2012

Writing on the corporate governance blog earlier this month, Bob Tricker observed that “serious”  interest in corporate governance is a recent phenomenon which only came to the fore following Sir Alan Cadbury’s 1992 Report. The dichotomy is that despite the existence of regulatory bodies such as the US Securities and Exchange Commission since the mid-1930s, it was not until problems such as the Enron scandal, the sub-prime crisis and more recent Libor scandal – that “corporate governance” became a buzzword in the business sphere, company law and regulation.

For Tricker, corporate governance  – to which constructs such as marketing, production, finance, operations research, and management information systems have only recently ceded ground – is quickly becoming the focus of a company’s organisational chart. Themes such as the board of directors, executive directors’ remuneration and their relationship with management are all now very much at the apex of the debate about issues such as shareholder democracy, accountability and transparency in the corporate sphere. It is often said that good corporate governance is about promises kept: Macey, Corporate Governance: Promises Kept, Promises Broken (2010). Conversely, bad corporate governance is considered “promise breaking behaviour”. Read the rest of this entry »





Wheatley: Libor Needs Strengthening

20 08 2012

The Wheatley Review (the “review”) commissioned by the Chancellor of the Exchequer published its initial discussion paper earlier this month. The Chancellor commissioned Martin Wheatley, the Chief Executive designate of the Financial Conduct Authority to review how the current framework for setting and governing Libor could be reformed. The options included (1) making participation in the setting of Libor a regulated activity; (2) using actual trade data to set Libor; and (3) enhancing transparency in the governance and setting of Libor.

The review’s initial paper – spread over five chapters and three annexes – identifies Libor’s failings and how the benchmark rate could be strengthened. Equally, the review considers the alternatives to using Libor. Moreover, the paper considers the current mechanism and governance of Libor, the criminal sanctions for its manipulation and ends with consultation questions. The questions, which are chapter specific and total fifteen in number, range from do we agree with the review’s analysis of the issues and failings of Libor to should there be an overarching framework for key international reference rates? Responses are requested (within four weeks) by 7 September 2012 to be sent to wheatleyreview@hmtreasury.gsi.gov.uk Read the rest of this entry »





Treasury Committee’s Views on Libor

18 08 2012

London Interbank Offered Rate (Libor) is an average interest rate set by the British Bankers’ Association (BBA). Libor, a benchmark interest rate which the international financial system is wholly dependent, is calculated on the basis of submissions of interest rates by major banks in London and – underpinning approximately US $350 trillion in derivatives – serves as the foundation of global banking and finance. Traders claim that Libor has been manipulated since 1991. Of late, the issue has become a huge scandal because banks either understated or exaggerated (“rigged”) Libor to cast false impressions regarding their creditworthiness or to profit from trades.

The problem was that, rather than overstating or understating figures, banks were required to submit the real/actual rates they were paying or would genuinely pay for borrowing from other banks. Ultimately, an attempt to manipulate Libor violates US law as the rate is widely used in American derivative markets. Moreover, adverse consequences in “fixing” Libor exist for consumers and international markets alike. From Britain’s position, in an economically deteriorating environment, the embarrassment could not have been more unfortunate because Libor is a “London” based exchange rate. Read the rest of this entry »