June 29, 2018

City watchdog is chasing the wrong prey

A recent Libor case involving a former Libor trader highlights an inconsistent approach by the Financial Conduct Authority.

As the list of Libor cases against individuals draws to an end, there have been raised eyebrows at the Financial Conduct Authority’s inconsistent approach to enforcement.

The latest discrepancy was noted by Judge Tim Herrington in the Upper Tribunal’s decision last week in the case of Arif Hussein. The watchdog has invested considerable resources into bringing action against Hussein, who was a relatively junior trader at UBS and now runs a burger chain, for a limited number of online chats about Libor submissions which took place almost a decade ago.

This is in sharp contrast to the approach taken towards a high-profile senior banking figure who recently escaped prohibition for attempting to unmask a whistleblower. The difference in approach is staggering and raises further questions about the authority’s fairness and ability to protect the markets. But first, how heavy handed was the FCA in relation to Arif Hussein? His involvement in Libor chats took place in 2008 and 2009. The FCA brought enforcement proceedings seeking a fine and prohibition in February 2014.

It then dropped part of the enforcement case against him due to limitation issues. The watchdog’s predecessor, the Financial Services Authority, had a maximum time of three years — since extended to six — to launch proceedings after finding out about an issue. The FCA made an error in its handling of earlier evidence provided by American regulators, which may have triggered the limitation periods. The internal FCA group that makes decisions about enforcement actions found that Hussein had been reckless but not dishonest in relation to the Libor chats. In January 2016 it concluded that Hussein was not a “fit and proper person” to be operating in a regulated industry and was banned from financial services. He then referred to the Upper Tribunal. 

In September 2017 the FCA was strongly criticised by the complaints commissioner for its handling of the case. In a bizarre sequence of events the FCA then provided Hussein with an apology for the inadequacy of its initial apology and for the delays in issuing the first apology and the subsequent complaints investigation. Alarm bells should be ringing. The Upper Tribunal again rejected both claims of dishonest and reckless behaviour in relation to the Libor chats but upheld a prohibition, criticising Hussein for failing to be transparent.

Separately Jes Staley, the Barclays chief executive, was fined almost £650,000 in May by the watchdog after using the bank’s internal security unit to unmask the identity of a whistleblower. However, in contrast with Hussein he kept his job at the bank, with FCA saying it had not found him to be unfit to continue as chief executive. Guidance and enforcement activity from the FCA in relation to Libor has been inconsistent at best, which the market and the judge at the Upper Tribunal have noted.

The FCA needs to take a clear and consistent approach. Institutions are more able to pull out the cheque book and settle, whereas individuals are put through their paces in what can be a gruelling process and result in exclusion from the field forever. Banning a burger chain owner from the financial markets while letting one of the most senior banking executives go reasonably unscathed for attempting to unmask a whistleblower is an unusual approach for the regulator.

First published in The Times Brief.