Regulation  

‘Prison needed to stamp out wrongdoing’: analyst

Sending people to jail may be the only way to prevent financial wrongdoing in the future, consultant Louise Cooper has said.

The chartered financial analyst made the claim after six banks, two of which are British, were collectively fined £2.6bn ($4.3bn) by British and US regulators for their role in manipulating the foreign exchange market.

HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase, Citibank and Bank of America have all been fined, while an investigation into another UK bank, Barclays, is ongoing.

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Ms Cooper said the situation was “depressingly familiar”.

She said: “I also note that no one has ended up in prison and I have had said many times before this creates moral hazard.

“If the only downside is that the bank pays a massive fine, then why won’t immoral traders repeat this behaviour in the future?

“And some of those attracted to this industry are those who will find a way round the rules to profit personally.”

The FCA, which levied £1.1bn worth of the total fine on five banks, cleared four institutions, although these still face investigations by other authorities.

It found that between 1 January 2008 and 15 October 2013 the five banks did not exercise “adequate and effective” control over their G10 spot FX trading businesses.

Meanwhile the Serious Fraud Office is carrying out an investigation into individuals, which could lead to criminal charges.

Martin Wheatley, chief executive of the FCA, said: “These record fines mark the gravity of the failings we found, and firms need to take responsibility for putting it right.”

Adviser view

John Ditchfield, of Wiltshire-based ethical investment firm Barchester Green, said: “Approximately 850,000 people work in the city and in that group you will always find people prepared to work in an unscrupulous way. The same is true of any industry.

“Part of the problem is that the rewards are being linked with activity, which isn’t necessarily in the best interests of the customer.”