Recently, ex-trader Tom Hayes appeared in court via video-link from Lowdham Grange jail, where he is incarcerated for rigging LIBOR. His aim is to overturn a lifetime ban from working in financial services. This was imposed by the FCA and known as a prohibition order.
Hayes is arguing that the ban should be held off while the Criminal Cases Review Commission decides whether his case should be referred to the Court of Appeal. His sentence has already been reduced from 15 to 11 years because he has Asperger’s syndrome and due to his lack of seniority when the offences were committed.
The Hayes case may be an extreme case of wrongdoing, but there are some broader issues, which could make interesting talking points for risk managers. So what should be taken on board?
The regulator has clearly set out enforcement referral criteria
The FCA’s referral criteria sets out a range of factors it may consider when deciding whether to appoint enforcement investigators and are used when the regulator considers that the potential outcome of an investigation might be to:
- Take disciplinary action to fine, publicly censure, suspend and/or restrict firms/individuals who have breached our requirements
- Make a prohibition order
The FCA wants to pursue individuals as well as organisations
According to the FCA’s Handbook: “The FCA will not pursue senior managers where there is no personal culpability. However, where senior managers are themselves responsible for misconduct, the FCA will, where appropriate, bring cases against individuals as well as firms.
The regulator has also sharpened its focus in this area through implementing the Senior Managers and Certification Regime, which has resulted in a strict enforcement policy affecting around 72,000 individuals in financial services.
Prohibition orders seen as a bigger deterrent than large fines
While large fines hit the headlines, these can also impact on a firm’s stability, jobs and in the case of a bank, its ability to lend. It is instead felt that probation orders and in the most severe cases, prison sentences, will send the strongest messages to the financial services community and act as the biggest deterrent.
A life sentence?
The FCA is unlikely to be mistaken when it comes to imposing prohibition orders. But, there have been instances when prohibition orders have been overturned. For example, following a successful challenge at the Upper Tribunal, the FCA last year withdrew a prohibition order it had imposed on Andrew Wilkins, a former director with Catalyst Investment Group.
The FCA had alleged he had failed to act with integrity and had disregarded the interests of investors as well as having approved misleading communications. But, the Upper Tribunal found that while he had failed to act with due skill, care and diligence, he did not demonstrate a lack of integrity or disregard for investors. It highlighted the serous nature of a prohibition order and the regulator was told not only to withdraw this, but also to reduce by half the £100,000 fine it handed down to Wilkins.
Strong defences are a must
So, the regulator’s rulings are not always set in stone. This also acts as a reminder to risk managers that a firm should have proper legal defence insurance in place, through a directors’ and officers’ policy and be prepared to defend robustly if there is sufficient justification.
But, if risk managers suspect that there are some with a lax approach to compliance, then the repercussions of a prohibition order could be well worth covering when it comes to looking at the consequences of breaking the rules.