Daily BulletinDaily Bulletin

The Conversation

  • Written by The Conversation
imageASIC Chairman Greg Medcraft says banks are adopting an 'overly legalistic ' approach.Mick Tsikas/AAP

The 14-year sentence handed to Tom Hayes, the Yen trader at the centre of the Libor-fixing scandal in the UK, is the longest sentence yet in a scandal that has cost his former employer UBS, and others, US$17 billion in fines.

Apart from his obvious guilt, Hayes went out of his way to antagonise the Court, and the Judge.

Hayes, described as the “Machiavelli of Libor”, will not be the last to suffer the consequences of this fraud. Unfortunately, however, it appears bank executives will not be among those punished. And this is curious. UBS either knew, turned a blind eye, or had such weak internal controls that Hayes was able to perpetrate this fraud for three some years.

UBS was no doubt motivated, in part, by the US$260 million Hayes made for it. All the while he was being courted by the usual suspects: Lehman Brothers and Goldman Sachs.

He then fell out with UBS, over pay, and joined Citibank. Within a year Citibank had discovered his fraud. What at UBS we were led to believe remained undiscovered for in excess of three years, Citi sacked him for.

Along with Libor fixing went the obligatory “Bollinger by the case” lifestyle, amply supported by a perverse incentive structure. Hayes claimed in testimony that his managers were well aware of what he was doing. Indeed one trader remarked “mom Teresa would have rigged Libor had she been trading it!”.

Tactically, Hayes was no genius. He gave 80 hours of sworn testimony to the Serious Fraud Office (SFO) as part of a plea deal. He then decided to renege on that deal, and plead not guilty. But he failed to make the admissibility of the testimony contingent upon the plea deal. So he was left pleading not guilty, facing 80 hours of his own testimony.

ASIC’s role

In Australia the Australian Securities and Investments Commission (ASIC) is investigating rigging of the bank bill swap rate, as well as misconduct in the forex rate. True to form, ASIC is again taking a “light-touch” approach, appealing to bankers’ better nature, despite the gathering storm in the community and the rage sweeping the Senate select committee.

ASIC obviously cannot read the writing on the wall, or seems unable to understand its remit: to enforce the law, with prosecutions if necessary, not gentle cajoling. The result is systemic fraud taking root within the financial system. Individual investors lose. As does every trader and banker who is honest and doing the right thing.

ASIC Chairman Greg Medcraft has expressed his frustration that banks are adopting an overly legalistic approach. But he neglects to mention the very substantial power that ASIC possesses. This includes the power to search, to seize, to eavesdrop, to enter, to inspect, to compel disclosure. Nor does he mention that ASIC has substantial resources, and could quite easily target one bank, or one trader, to make the point that rigging interest rates will not go unpunished.

This comes on top of a litany of failures from ASIC to enforce the law: the financial advice scandals at CBA, NAB and Macquarie, front-running and insider trading at IOOF, and now interest rates. As my colleague Pat McConnell wrote recently in The Conversation, most of the compliance being compelled in the financial industry is not thanks to ASIC, but the result of investigative journalism from “one-woman regulator” Adele Ferguson.

Josh Frydenberg, assistant Treasurer, has announced a review of ASIC. But the review will not accept submissions, so is hardly consultative.

Having worked for ASIC’s sister organisation and bank regulator APRA, I can attest to cultural impediments within government that do not take kindly to criticism, and are deeply resistant to anything that challenges the prevailing orthodoxy. Disappointingly, these were exactly some of the criticisms levelled against APRA after the collapse of HIH. On that occasion the Royal Commission called for changes to APRA that would reform the culture of the bank regulator. For a time APRA seemed genuinely engaged in this project. But it has long since fallen back into old habits: civil service mandarins more concerned with building personal empires than building resilience in the financial system.

It’s time for the creation of a Financial Regulator Assessment Board, in line with a recommendation (27) from the Financial System Inquiry. Nothing short of an ongoing, independent review of the corporate cop will stop Australia’s slide into systemic corruption. A board, comprised of wise women and men, not connected to government (Treasury, the RBA, APRA or ASIC), and who have no skin in the game, are more likely to provide the kind of over the horizon views of financial system challenges, than are hand-picked bureaucrats, picked by the assistant Treasurer.

Some might view the establishment of such a board as duplication. Which in some ways is exactly what it is.

But in aircraft engineering duplication is called “double-redundancy”. In other words, when one system fails, a second, back-up system picks up where the first, failed system left off. This is exactly what a Financial Regulator Assessment Board could do for the financial system.

Must we wait for a financial crisis before this idea is implemented?

Andrew Schmulow does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

Authors: The Conversation

Read more http://theconversation.com/lie-bore-powerful-bank-regulators-running-out-of-excuses-45756

Why the Black Lives Matter protests must continue: an urgent appeal by Marcia Langton

arrow_forward

Sweden eschewed lockdowns. It's too early to be certain it was wrong

arrow_forward

‘The Epilogue’ to Traidmarc’s incredible story of conviction

arrow_forward

The Conversation
INTERWEBS DIGITAL AGENCY

Politics

Did BLM Really Change the US Police Work?

The Black Lives Matter (BLM) movement has proven that the power of the state rests in the hands of the people it governs. Following the death of 46-year-old black American George Floyd in a case of ...

a Guest Writer - avatar a Guest Writer

Scott Morrison: the right man at the right time

Australia is not at war with another nation or ideology in August 2020 but the nation is in conflict. There are serious threats from China and there are many challenges flowing from the pandemic tha...

Greg Rogers - avatar Greg Rogers

Prime Minister National Cabinet Statement

The National Cabinet met today to discuss Australia’s COVID-19 response, the Victoria outbreak, easing restrictions, helping Australians prepare to go back to work in a COVID-safe environment an...

Scott Morrison - avatar Scott Morrison

Business News

Reinventing The Outside Of Your Office

Efficient work is a priority in most offices. You need a comfortable interior that is functional too. The exterior also affects morale. Big companies have an amazing exterior like university ca...

News Company - avatar News Company

Kaspersky and Ferrari partnership: tailoring cybersecurity for an iconic brand

Kaspersky is commemorating the 10 year anniversary of its strategic partnership with iconic, global brand - Ferrari. The cybersecurity company is a sponsor of the brand’s Formula One racing team...

News Company - avatar News Company

Instant Steel Solutions Review

Are you keen on having the right guidance, knowledge and information about the right kind of steel purchases for your industries? If yes, then you are in the right place. There is no doubt that ...

a Guest Writer - avatar a Guest Writer



News Company Media Core

Content & Technology Connecting Global Audiences

More Information - Less Opinion