Forex scandal: White collar criminals must face jail not fines, say UK experts
Financial penalties expected to hit British banks for Forex rigging
will do little to tackle financial crime in the City of London as
regulators continue to prioritize high finance over ordinary citizens,
experts warn.
British
banks could be fined billions as investors pursue them in UK civil
courts for rigging foreign exchange (Forex) rates, following a landmark
US settlement on Friday.
Royal Bank of Scotland, Barclays, HSBC and Goldman Sachs were among nine global banks that agreed to the £1.3 billion (US$2 billion) settlement with irate investors who had been affected by the rate rigging.
The New York case is expected to unleash a further flood of claims in London, the largest foreign exchange trading hub in the world. Lawyers say settlements in the UK could total tens of billions of pounds.
New Economics Foundation (NEF) Senior Economist Josh Ryan-Collins said high finance is riddled with criminal activity. He expressed little hope that financial penalties for Forex rigging will breed the root-and-branch reform that is required to clean up the banking sector.
Collins, whose work focuses on financial reform, said rogue financiers should face imprisonment.
“To embed real change, management as well as ‘rogue traders’ themselves need to be held accountable for persistent manipulation activity of the type we have seen in Forex and Libor markets, including the threat of imprisonment,” he said.
“But more broadly, unless there is structural change to the banking system to reduce the need for very high returns, for example by breaking up very large banks that have been persistent offenders, the problems we currently have are likely to return.”
UK fines for Forex rigging
will drive financial crime further into the recesses of the shadow
banking sector, according to Joel Benjamin, a research assistant at
Goldsmiths University’s Political Economy Research Centre.
“Goldman Sachs and other banks are now moving to more sophisticated, chat room functions after trader chat incriminated traders with the Libor and Forex scandals,” he said.
Benjamin, who is also a campaigner for Debt Resistance UK, said Britain’s regulatory architecture is the least robust of all major global financial centers.
“Even though talk has shifted towards holding senior bankers accountable for failures, the scapegoating prosecution of Tom Hayes as the ‘ringleader’ of the Libor scandal does not bode well as a yard stick of regulatory endeavor by authorities,” he said.
Benjamin stressed that fines leveled at banks fail to tackle white collar crime and hit shareholders as bankers remain unfazed.
“Reliance upon deferred prosecution agreements (DPA) to engineer these fines ensures the finer details of bank crimes are shielded from both the public and victims,” he said.
“The current regulatory and enforcement regime is designed to protect the banks, not citizens and institutions.”
Benjamin argued regulatory reforms promised in the wake of the global financial crisis have failed to materialize. He called for senior bank managers to be held accountable for banks’ criminal activity, emphasizing such an approach would “send a clear message to the industry that fraud is no longer tolerated.”
Forex rigging was the most recent in a series of rate-rigging scandals to engulf the global financial sector. Criminal traders at some of the world’s biggest banks conspired to manipulate the $5.4 trillion-a-day market, while making handsome profits in the process.
They rigged the foreign currency trades via email and online chat rooms to the detriment of the companies and investors who had placed trust in them. The rogue traders then relayed instances where they bolstered their profits, while lobbying their managers for bigger bonuses.
British and American regulators have thus far fined banks over £6 billion for Forex rigging.
It has been suggested that hedge funds, pension funds and other investors could also launch cases against banks found guilty of Forex rigging in Singapore and Hong Kong.
Royal Bank of Scotland, Barclays, HSBC and Goldman Sachs were among nine global banks that agreed to the £1.3 billion (US$2 billion) settlement with irate investors who had been affected by the rate rigging.
The New York case is expected to unleash a further flood of claims in London, the largest foreign exchange trading hub in the world. Lawyers say settlements in the UK could total tens of billions of pounds.
New Economics Foundation (NEF) Senior Economist Josh Ryan-Collins said high finance is riddled with criminal activity. He expressed little hope that financial penalties for Forex rigging will breed the root-and-branch reform that is required to clean up the banking sector.
Collins, whose work focuses on financial reform, said rogue financiers should face imprisonment.
“To embed real change, management as well as ‘rogue traders’ themselves need to be held accountable for persistent manipulation activity of the type we have seen in Forex and Libor markets, including the threat of imprisonment,” he said.
“But more broadly, unless there is structural change to the banking system to reduce the need for very high returns, for example by breaking up very large banks that have been persistent offenders, the problems we currently have are likely to return.”
“Goldman Sachs and other banks are now moving to more sophisticated, chat room functions after trader chat incriminated traders with the Libor and Forex scandals,” he said.
Benjamin, who is also a campaigner for Debt Resistance UK, said Britain’s regulatory architecture is the least robust of all major global financial centers.
“Even though talk has shifted towards holding senior bankers accountable for failures, the scapegoating prosecution of Tom Hayes as the ‘ringleader’ of the Libor scandal does not bode well as a yard stick of regulatory endeavor by authorities,” he said.
Benjamin stressed that fines leveled at banks fail to tackle white collar crime and hit shareholders as bankers remain unfazed.
“Reliance upon deferred prosecution agreements (DPA) to engineer these fines ensures the finer details of bank crimes are shielded from both the public and victims,” he said.
“The current regulatory and enforcement regime is designed to protect the banks, not citizens and institutions.”
Benjamin argued regulatory reforms promised in the wake of the global financial crisis have failed to materialize. He called for senior bank managers to be held accountable for banks’ criminal activity, emphasizing such an approach would “send a clear message to the industry that fraud is no longer tolerated.”
Forex rigging was the most recent in a series of rate-rigging scandals to engulf the global financial sector. Criminal traders at some of the world’s biggest banks conspired to manipulate the $5.4 trillion-a-day market, while making handsome profits in the process.
They rigged the foreign currency trades via email and online chat rooms to the detriment of the companies and investors who had placed trust in them. The rogue traders then relayed instances where they bolstered their profits, while lobbying their managers for bigger bonuses.
British and American regulators have thus far fined banks over £6 billion for Forex rigging.
It has been suggested that hedge funds, pension funds and other investors could also launch cases against banks found guilty of Forex rigging in Singapore and Hong Kong.
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