This column is going to sound like it was written for a journal offering something to the left of Stalinism, but some things need to be said and asked. So let’s ask the question – is the UK’s Serious Fraud Office’s dropping of the Libor investigation yet another example of how senior managers are getting away with it, while their (former) staff bear the brunt?
This is not so much to say that we should be looking for senior managers to go to jail for what went on in various markets a decade ago, but more to ask how is it fair for the people on the desks to be seemingly judged differently to those above them?
An example can be found in Barclays. Several former traders have been convicted and jailed for manipulating various Ibors, and yet BBC News earlier this year revealed details of a telephone recording in which that bank’s submitter was directed by a manager to “low-ball” their submission – a discussion that implicated the Bank of England.
Personally I think if the Bank of England thought it was a prudent move to pressure rates lower to help calm a financial crisis, it should be able to do so – perhaps a little more transparency could have helped – because it is a policy decision. If that is the case, however, then how can it be that submitters and traders, who no doubt had been told of, or heard, of the central bank’s wish, are later jailed for doing just that? That certainly did not happen in the latter case because although in the aforementioned phone conversation Barclays submitter Peter Johnson protested the action, he was later jailed, while his manager has not, and apparently will not after the SFO’s action, face any action.
I remain a little ambivalent on all of this because unlike the FX fixes where there were, and are, alternatives available to execute and benchmark a trade; in money markets, as I suspect we will find out when we go to the new OIS-based mechanism, it is not obvious that a better option exists. It is also to be expected that – within a certain boundary – various submitters would shade their price to take into account their position, after all, the Libor rate set should also be influenced by market positioning and that is reflected in the rates submitted.
The conversations around the various rate sets, as in the case of some FX investigations, don’t look good on paper, but they are only part of the story. It is hard to believe that an executive would make up an indication of interest from a central bank, although it has to be stressed that the information was coming at least second hand because according to the BBC the source of the apparent interest to see lower rates was a conversation between a senior Bank executive and the CEO of Barclays. How that message can change as it passes through potentially several mouths we will never know.
So the upshot is simple. If we are not going to investigate to any degree the actions of senior managers who were pulling the strings, why should we continue to chase people who were, apparently, merely following orders. I have made the observation before that following orders should not give a person carte blanche to carry on as they like, if they know an action is wrong they should refuse to comply – albeit that will be difficult. The challenge in this case is that several of these traders probably thought they were doing the right thing in low-balling rates because it would help banks get through a funding crisis and send a broader message to a world on the verge of full-blown panic that everything was OK – it could also be the case that that was the message they were receiving from higher echelons.
Regular readers will know that I have serious concerns over how many authorities have been conducting their investigations, it seems to me the only difference between the UK and US, for example, is that the latter will pursue their cases much harder, including, as was the case in the Mark Johnson prosecution, changing the nature of the charges against the defendant as the case progresses and original claims are comprehensively proved fallacious. The banks also have to accept some culpability in this for thinking that simply by paying a fine and firing a few middle level executives it would all go away, for this has established an assumption of guilt towards anyone involved in the whole sorry process.
I am not sure how we exit the morass, especially as the SFO and other authorities have ongoing investigations, but it seems to me that someone, somewhere in a position of serious authority, needs to establish a framework for how this is judged. At the moment it is, relatively speaking, the little people that are in the firing line. If we are to have a proper investigation then we need to know exactly who said what to who, how that message was passed down the line, and what was said immediately after the various submissions were entered (for example, a “well done’ email or message).
If we are not to have that investigation then there needs to be a quick and thorough re-think over those convictions that have already occurred. People are going to jail for this stuff – we have to seriously ask ourselves in light of the SFO decision whether that is right.