$26 billion in fines and 28 jail sentences: How global regulators are cracking down on financial crime

  • Global regulators have levied over $US26 billion in market conduct fines since 2012, with a sharp increase in 2017, according to a new report.
  • The majority of fines were imposed by US regulators, on both US-based and international institutions.
  • 28 people have also been sentenced to jail time for financial crime.

LONDON – Global financial regulators have levied over $US26.4 billion (£19.5 billion) in market conduct fines since 2012 and intensified their crackdown on malpractice in 2017, according to new research by risk analysis firm Corlytics.

2015 was the peak year for market conduct fines for both firms and individuals. It was followed by a decrease in activity in 2016 but the first three quarters of 2017 saw a steep increase in fines.

More than 70% of the total fines between 2012 and the third quarter 2017 were for market abuse cases. A substantial portion of the fines related to the LIBOR rigging scandal that came to light in 2012, in which traders at a number of banks artificially manipulated the interest rate at which banks lend to each other to increase profits.

British trader Tom Hayes in 2015 became the first, and so far only, person to be sentenced to jail for rigging LIBOR. He was sentenced to 14 years in prison, reduced to 11 on appeal.

Globally, 139 senior executives faced market bans and 28 people were sentenced to prison for financial crimes during the last five year, according to Corlytics’ report.

Screen Shot 2018 01 02 at 10.39.15Corlytics

“Making individuals responsible for their own actions through threat of penalties is becoming a favourite mechanism for regulators to improve compliance with market conduct regulation,” said John Byrne, CEO at Corlytics.

“It is apparent that conduct and culture are high on the agenda of many financial services businesses. Although many financial institutions have put programmes in place to address the culture that often leads to bad behaviour and market conduct issues.”

The US is the global financial enforcer

Almost 80% of fines between 2012 and Q3 2017 were issued by US regulators, the majority of which (85%) related to market abuse and disclosure.

The UK’s Financial Conduct Authority (FCA) accounted for $US3.1 billion (£2.2 billion) of the conduct fines handed out over the same period.

European banks are not safe from US regulators: nearly half (47%, or $US9.7 billion of the $US20 billion total) of all fines levied by US regulators were imposed on banks based in the UK, France, Germany, and Switzerland, indicating that US regulators are treating foreign and domestic banks in similar ways.

Screen Shot 2018 01 02 at 10.43.49Corlytics

Non-financial institutions are also increasingly in the spotlight. Of the 34 enforcement actions in the period for disclosure issues, 33 went to non-financial institutions, including tech firms, pharmaceutical companies, ratings agencies and individuals. Sanctions for these firms could include market bans, injunctions, and even jail time.

In 2016, for example, the US Securities and Exchange Commission (SEC) took enforcement action against a cannabis consultancy firm in the US. The firm falsely touted “record” revenue numbers to investors and claimed to be a leader in the marijuana industry, when in fact some of its earnings came from sham transactions with a secret affiliate.

Continuing malpractice is partly due to a lack of information among financial institutions about risks, according to regulatory advisor Peter Oakes.

“Despite its obvious importance, there is no legislation, policy or rule definition as to what is meant by ‘conduct regulation,’ leaving many firms struggling to address this important risk control,” Oakes said. Since the financial crisis, he said, regulator intervention has grown “exponentially.”

Speaking to Business Insider last year, Mark Yallop, Chair of the UK’s FICC Markets Standards Board, said repeated market misconduct was fuelled by a “generational-type problem” and often came in 25-year cycles.

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