Only a couple of weeks ago I was commenting on a NERA report that had found that in the period between April 2012 and October 2014 the FCA had imposed fines of over £1bn, in sharp contrast to the preceding decade during which a paltry £320m had been levied.

Now, on 12 November 2014, the FCA has set another UK record: in one day it has exceeded the previous 30 month record, by fining 5 banks, Citibank, HSBC, JPMorgan Chase, RBS and UBS for gross and persistent misconduct in their Forex trading rooms more than £200m each, totaling £1,114,918,000.  Other banks, including Lloyds and Barclays, have yet to reach a settlement of the FCA claims, and therefore the final tally is likely to exceed £1.5bn.  While this pales into insignificance compared with the $56.5bn penalties imposed by US regulators, it marks a step change in attitude.  

Citibank, JPMC and UBS have also faced huge fines from their home regulators, including the CFTC and Finma.  Other regulators, including the infamous Department of Financial Services and the EU, are carving out their own settlements, and there is much more pain to come.

The FCA’s current slice of the action is, nevertheless, sizeable, and since the fines go to the Exchequer, the Chancellor may be thinking that the recent surprise £1.7bn levy from Brussels is not looking quite so problematic, but that ignoble thought apart, what is the point of such massive fines?

Fines imposed by the financial regulator on firms are designed to punish, to deter, and to express public outrage.  The size of the fines perhaps reflects a need to punish more harshly than before, because it is clear that the banks were not deterred from continuing the kind of bad behavior they had indulged in over Libor.  Knowing that such misconduct had been uncovered and was in the process of being punished, some major banks continued with Forex mismanagement for many months, only finally stopping in October 2013. 

The concept of punishing a business is slightly artificial, and the problem with imposing a fine is that those who feel the effects may include the shareholders and the employees, who are innocent of wrong-doing.  As it happens, the banks’ share prices were not greatly affected by the news of the fines, but the impact may be longer term, perpetuating the losses made since the global financial crisis and leading to further shareholder pain.  Shareholders can, of course, seek to ensure that the firm is deterred from misbehaving again by exerting pressure on the Board, and in any event are not, according to some, to be much pitied as they enjoyed the profits of the boom years during which so much misconduct boosted profits. 

The public may feel that some sort of justice has been done, although they will also want to ask, as happened in the Libor investigations, whether the individuals within the banks who cooked up the deception are going to be called to account.  Many headlines since the fines were imposed quote politicians and others calling for prison for the wrong-doers, and they are asking why management did not step in.  And if so, how far up the executive ladder are the guilty parties going to be found?  

The traders who developed stratagem to fix the market in their favour can be relatively easily identified, and therefore prosecuted (although that process is unlikely to be simple in spite of the childish bragging in on-line banter already uncovered by investigators).  But did their line managers know about this, and who at board level was responsible for ensuring that the traders were behaving honestly and ethically?  What was the tone at the top?  Did senior management, in the wake of the Libor scandals, take the time to check out conduct in similar markets? The Serious Fraud Office is already looking at all this, and while considering whether criminal charges should be brought in relation to Forex in much the same way as charges have been brought for Libor rate fixing, they will be carefully considering line responsibility.

The timing of the publication of the Final Notices consequent on the settlements reached with the banks is interesting.  This has been achieved with commendable speed, given the significant hurdles that FCA Enforcement will have had to get over.  Some have complained that the FCA must have cut corners and wrapped up the deals ‘on the hoof’, but by any standards, this is an impressive performance.  It may, of course, be the case that the banks, still reeling from Libor, just wanted to get the bad news out of the way at the earliest opportunity, and to move on, and were therefore eager to settle.  It may also be that the investigation teams will have learned lessons from Libor that enabled them to proceed more efficiently. In addition, the banks themselves were forced to undertake much of the investigating work, thus reducing the FCA’s burden.  But as Tracey McDermott, FCA Director of Enforcement pointed out, even with the bank’s help it took her team 45 man years to get the case to this stage, and the outcome is surely one the FCA can be hugely proud of.

One subject on which there may have been discussion is the extent to which the final results of the Enforcement investigations into the failings by the banks could be published in advance of any criminal action.  There must have been a risk that the SFO would insist that any such publication might prejudice a criminal trial.  However, since no criminal proceedings are yet before the courts, it could be argued that there was nothing to prevent publication. While, therefore, the FCA will be as keen as anyone to ensure that there is no possible prejudice to any criminal process, the regulator will have wanted to perform its duties to the market, and get its message across, at the earliest opportunity.  The FCA is very keen to show that it has got a grip on banking misconduct, and that the UK banking market is moving on from the mistakes of the past.  Any delay in publishing a Final Notice diminishes the impact of the publication, and any possible prejudice to a trial that is unlikely to take place for some years was rightly ignored. 

So, a very good day for the FCA, but, of course, not the end of the Forex saga.  There will be more FCA fines against firms, and individuals are likely to face regulatory action. This will now be relatively straightforward.  A more difficult challenge will face the SFO, and it is likely to be some time before the fraud prosecutor can reach any conclusions about criminal charges, and much longer before any cases get to trial.  The Libor trials are due to get under way in 2015, and will probably still be going (in the absence of guilty pleas) in 2016.  It might well be 2017 before Forex hits the courts.