Barclays fined £290m as bid to manipulate interest rates is exposed

The fine from the FSA  means that the CEO will not receive his bonus due “the bank’s ‘serious, widespread’ breaches of City rules relating to the Libor and Euribor rates”. The boss of Barclays, Bob Diamond, is under mounting pressure after the bank was hit with fines  for its “serious, widespread” role in trying to manipulate the price of crucial interest rates that affect the cost of borrowing for millions of customers around the world.

FSA asleep at the wheel or too incestuous?

The full article with all the gory, greed-ridden details is in the  Guardian today. But there are certain aspects of this which, from a governance perspective I feel I need to highlight.

The FSA has no balls or teeth; The FSA fine of £59.5m is a rounding error, a bar bill, a minor irritant not a fine. The FDA regularly imposes fines in greater than $1 BILLION on pharma companies.. 2 years ago the FDA fined the American Red Cross $16m. BTW this is less than 60% of the CEO’s salary over the time of the abuses. Barclays must be laughing all the way to the petty cash box.

There were calls for Diamond to step down after the Financial Services Authority slapped a £59.5m fine on the bank – the largest ever levied by the City regulator – forcing him and other top executives to forgo any bonuses for 2012.

How long does it take for a regulator to spot a pattern? A year, 2 years. Not 7? What have they been doing?

The FSA – and authorities in the US which hit Barclays with penalties of £230m – described repeated breaches of rules dating back to 2005. They involved “a significant number of employees”, including senior managers, and called into question the integrity of the markets.

One rule for the rich mates of the ‘Government’, another for the rest? Jimmy Carr has taken a great deal of heat for his tax ‘planning’. He hosts a panel show where the 6 panelists, all comedians had a field day (Hint: Watch this somewhere you can laugh out loud and possibly even cry. The video is at the bottom of this post.)  These abuses make Jimmy’s actions look like nicking a couple of lollipops from the local sweet shop.

The fines come as Diamond – who has earned almost £100m from Barclays since 2006 and was at the time running the division where the misconduct took place – has been trumpeting the bank’s commitment to acting as a “good citizen”, despite the bank’s run-in with HM Revenue & Customs over a £500m tax avoidance scheme and a row with shareholders over his £17m pay packet this year.

A lack of business controls; We see this as a systemic and widespread problem across businesses. Normally for 2 reasons. Firstly, unless the end to end processes are understood it is difficult to design the right controls. Secondly, if controls are in place they are often managed in huge spreadsheets and it becomes and administrative nightmare and therefore gets sidelines. AS back to the first point, the FSA do not make the pain big enough to  keep the banks focused.

Tracey McDermott, acting director of enforcement and financial crime at the FSA, said Barclays’ misconduct was “serious, widespread and extended over a number of years”. She said that Barclays traders’ attempts to manipulate interest rates “to try to benefit trading positions is wholly unacceptable. “This was possible because Barclays failed to ensure it had proper controls in place. Barclays’ behaviour threatened the integrity of the rates with the risk of serious harm to other market participants”

Naive or cynical spin: The way to change the behaviour permenantly is from a process and governance perspective. The proposed actions of “fines” and a “public investigation” are purely spin and window dressing to buy time until the next scandal captures the media and public’s attention.  Call it naive or cynical. Either way it is ineffectual.

Lord Myners, the former City minister under the Labour government, told Newsnight: “This behaviour will only change if people face the prospect of criminal charges.”

David Meister, the CFTC’s director of enforcement, said the investigation had been launched to “protect the markets and the public from such illegal conduct.” He added: “Today’s action demonstrates that we will bring the full force of our authority to bear as we carry out that mission”.

Saying sorry is not enough. This is not primary school.

Barclays said it had received credit from the authorities for “extensive co-operation, as well as the actions it has taken to enhance its systems and controls”.

Jimmy Carr’s tax problem


3 thoughts on “Who will regulate the regulators?

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