Last week, headlines were made as US officials confirmed that five of the world’s biggest banks will be forced to pay a total of $5.7bn (£3.7bn) in fines for their involvement with the foreign exchange (Forex) scandal. The news sparked some interesting coverage, with many calling the future of regulation into question.
What’s next?Like many, Mark Taylor, former foreign exchange trader and Dean of the Warwick Business School, has been considering how to avoid a similar scandal in future. He believes the best incentive not to cheat is the threat of criminal charges being brought against those at fault.
$5.7bn
The total that five big banks must pay for charges including rigging the foreign exchange market
To illustrate his point, Taylor compares bad banking culture to reckless behaviour by public transport drivers. “If there was a bus company with a culture of driving recklessly, the company would no doubt be investigated, but the reckless bus drivers themselves would face criminal charges,” he explains.
But he doesn’t stop there. For Taylor, individual accountability must be enforced across all levels of business. “It's easy to say it was the action of a few individuals and senior management didn't know about it,” he adds. “If senior management didn't know about it, then they should have known about it. Either way, they should take responsibility.”
CNBC analysis Missing defenceHowever, while many have highlighted a need for individual accountability, Stephenson Harwood lawyer Alan Ward has spoken out about the lack of opportunity for individuals to defend themselves.
For Ward, financial regulation needs to be rigorous, but it must also be fair. “Has any of the five UK and US regulators involved in the settlements even thought to ask the bankers vilified in the headlines what they think about it all?” he asks.
You would assume that the agencies conducting these investigations would have asked the allegedly culpable individuals to explain their actions, he continues. “But a Court of Appeal judgment handed down last Tuesday (the day before the FX settlements were announced) has highlighted, and directed criticism at, the manner in which the Financial Conduct Authority attributes blame to identifiable individuals in regulatory notices, without first giving those individuals any right to provide an explanation.”
“We may now see a very significant change in how regulatory enforcement in the City is both conducted and publicised,” he notes.
City A.M. comment Keeping up with fintech Like Taylor and Ward, Knowlton Thomas, Managing Editor of
Techvibes, is also thinking about the future – but rather than considering the regulation of big banks, he’s musing on the need to regulate smaller businesses within the growing world of fintech.
He alleges that many of these businesses are able to “fly under the regulatory radar”, without the penalties in place to hold them to account. “As new innovations make their debut seemingly every other day, businesses working with cutting-edge technology frequently find themselves in a cyber no-man’s land, where both the law and regulators have yet to catch up,” he writes.
But while “regulatory compliance can sometimes take a backseat to innovation”, regulators will not jeopardise the integrity of the financial system for the sake of new technology, Thomas adds. “With an abundance of financial technology companies now entering a domain once reserved only for big banks and major remittance companies like Western Union, we could be looking at a coming tidal wave of disciplinary actions as regulators begin to recognise that they are operating as money services businesses.”
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