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“Short, Sharp Shock” Needed for FX Market

The recent
multi-billion dollar fines given to a range of banks and the continued flow of
negative headlines relating to the financial markets are still not enough to
prevent criminal behaviour from happening in the future, according to Andrew
Bullion, partner at law firm Hausfeld.

Speaking at the
recent Profit & Loss conference
in Copenhagen, Bullion said that while it is difficult for foreign exchange
traders not to talk to each in the course of their duties, it was for the
traders themselves to decide whether their actions were right or wrong.

“You will always
have bad actors, you cannot regulate people, legislate people or comply people
away, the bonus will always make it worthwhile,” he told delegates.

According to
Bullion, it requires a “short-sharp shock” to reign in criminal activity and
make traders aware of the seriousness of their actions and scale of the
punishments involved.

Asked if the
recent 14-year jail sentence handed down to former UBS and Citi trader Tom
Hayes – the first criminal conviction for an individual found guilty of
manipulating Libor – was sufficient a shock to change the landscape, Bullion
noted that regardless of the existing penalties or laws in place, there is a
natural tendency for people to overcome these fears.
 

“People have
short memories, the personal gains are too high. I think that there are people
in chat rooms right now circumventing rules – it’s a fact of human nature,” he
claimed.

 “I don’t think this (the Tom Hayes sentence)
will be a large enough stone in the pond to cause ripples to the shore,” he
added. “I’m not sure at this scale of personal compensation what it would take
to actually shock the wrong people from doing what they really want to do.”

Looking forward,
Bullion said that while increased internal regulation and tighter codes of
conduct will help the market in becoming more self-regulating, he firmly
believes that even more central regulation is needed, creating a wider and more
comprehensive range of “hooks” that regulators can use to prosecute offenders.

nick@profit-loss.com  Twitter @Profit_and_Loss

Colin Lambert

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