The Financial Conduct Authority's ban and £1.8mn fine of Jes Staley last month is a warning not to bury your head in the sand.
One does not need to be familiar with the labyrinthine FCA handbook to appreciate that the FCA does not expect to be misled.
It is therefore not surprising that it banned Staley, former Barclays chief executive, from holding senior positions in financial services last month and fined him £1.8mn after having found that he did just that.
Such cases ordinarily concern failures to disclose material information relevant to one’s fitness and propriety, such as lying about professional qualifications. Staley’s case is unusual in that it concerned information about a personal relationship, namely that with Jeffrey Epstein.
The FCA found that he recklessly approved two misleading statements that “he did not have a close relationship with Mr Epstein” and that his “last contact with Mr Epstein was well before he joined Barclays in 2015”.
Scrutiny of their relationship dates back to when Staley joined Barclays in December 2015. At the time, it was widely reported that Epstein was lobbying for Staley to become Barclays chief executive. Barclays denied the reports.
Following Epstein’s arrest on federal charges relating to the sex trafficking of minors in summer 2019, the FCA asked Barclays, via telephone, how they had satisfied themselves that there was no impropriety in the relationship.
Many will conclude that Staley was burying his head in the sand, hoping that a straightforward denial would placate the FCA. Such an attitude is ill-advised.Staley subsequently approved the wording of the four-paragraph letter from Barclays to the FCA that included the two misleading statements.
Staley is appealing the decision notice but, based on the evidence cited, it is difficult to see him succeeding. The two exchanged more than 1,100 emails between July 2008 and December 2012. These included a description of Epstein as his “most cherished friend”.
Regular exchanges continued through to October 2015; one email noted how their friendship shared the “strength of a Greek army” in that it “held shoulder to shoulder, and would not flee or break, no matter the threat”.
The appeal may well focus on the mechanics of the statements. Staley argued that he did not participate in the two FCA telephone conversations. He did not draft (or send) the letter itself and had provided a substantial amount of information to Barclays about the relationship. It was up to Barclays as to how to use this information to address the FCA’s enquiry.
Staley did, however, approve the letter, confirming that the language was “fair and accurate”. The information was clearly within his own knowledge. It is, as the FCA concluded, reasonable to expect Staley to have corrected the statements.
Many will conclude that Staley was burying his head in the sand, hoping that a straightforward denial would placate the FCA. Such an attitude is ill-advised in three key respects.
Proactive engagement
First, all regulated persons must be “open and co-operative” with the FCA, but senior managers must also “disclose appropriately any information that the FCA or [Prudential Regulation Authority] would reasonably expect notice”. This goes beyond providing the bare minimum information and requires a proactive approach.
The FCA expected him to disclose “uncomfortable truths about his personal relationship with Mr Epstein”.
The FCA may have thought the brevity of the letter itself was odd, given the media attention. The FCA did not, however, seek further detail before opening the investigation and it cannot be assumed that regulators will first request more detail if what has been provided is insufficient.
Truth will out
Second, Staley complained that he did not have access to many of the emails at the time he approved the letter. That was not a sufficient mitigant for the FCA, who responded that Staley cannot have failed to recall the nature and extent of his relationship with Epstein and must have recalled discussing his appointment as chief executive, given its importance to Staley.
Staley may have been hoping these emails would not come to light. However, international co-operation has been a success story of the past decade for regulators and law enforcement alike.
The FCA has seven separate information sharing agreements with US federal agencies.
Indeed, it is understood that a large tranche of emails came via US authorities having been disclosed in unrelated US Virgin Island civil proceedings. One must assume that ‘difficult’ emails – and any written or recorded communications – will eventually surface.
Facing the consequences
Lastly, misleading the regulator will likely result in the highest penalties. In Staley’s case, a level four fine amounting to 30 per cent of his income during the period of the breach. Settlement discounts and mitigation adjustments are effectively unavailable.
Staley’s case is ultimately a cautionary tale not to bury your head in the sand when “uncomfortable truths” arise – especially when dealing with your regulator.
Joseph Duggin is a senior associate at Peters & Peters
