The Financial Conduct Authority (FCA) has today published details of two warning notices given on 28 November 2013 to bankers alleged to be knowingly concerned in failings in relation to an interest rate benchmark, in respect of whom the FCA is taking enforcement action. These statements are the first to be published by the FCA under the powers conferred by the Financial Services Act 2012, which allow the regulator to make public details about warning notices against firms and individuals before enforcement action is complete.
The individuals have not been identified:
- The first was a submitter at a bank, whom the FCA considers to have:
- made interest rate submissions to benefit trader’s positions
- colluded with a broker and with traders at another panel bank by making interest rate benchmark submissions which took into account a request made by that broker/those traders and by making requests to the panel bank on behalf of traders at his bank
- taken into account the interest rate derivative positions on the trading book for which he was responsible when making interest rate benchmark submissions.
The FCA is charging him with being knowingly concerned in the contravention of Principle 5 by the bank for significant failings in relation to an interest rate benchmark over a period of more than 2 years.
- The second was a manager at a bank, whom the FCA considers to have:
- been aware of , and condoned, traders making requests to submitters to manipulate interest rate benchmark submissions, and submitters making submissions which took those requests into account
- failed to manage appropriately the business areas for which he was responsible, and instead to have facilitated attempted manipulation of submissions
- taken no steps to address the absence of systems, controls or policies governing benchmark submissions.
- taken no steps to mitigate the risks posed by the conflict of interest in benchmark submitters also trading derivative products referenced to the benchmark
The FCA is charging him with being knowingly concerned in the contravention of Principles 3 and 5 by the bank for significant failings in relation to an interest rate benchmark over a period of more than 3 years.
Publishing details of warning notices
When the FCA originally consulted on the publication of details of warning notices, it had proposed that the default position would be to publish details of warning notices in respect of both firms and individuals, and that the statement would normally contain sufficient information to identify the firm or the individual, as well as sufficient information to enable consumers, firms and market users to understand the nature of the FCA’s concerns.
Following that consultation, and having taken into account respondents’ comments, the FCA accepted that the potential harm caused to an individual from publication at this stage of the enforcement proceedings will normally exceed the benefits of early transparency, but that this would not normally be the case for firms. The FCA accordingly decided that although it would normally identify a firm that is the subject of a warning notice, it would not as a general rule identify an individual; the circumstances in which it might consider it appropriate to do so include situations where:
it is not possible to describe the nature of its concerns without making it possible to identify the individual;
it is necessary to avoid other individuals being mistakenly believed to be the individual in breach
it would help to protect consumers or investors
it is necessary to maintain public confidence in the financial system or the market, or
it is desirable to quash rumours in the market.
A couple of practical points are worth noting:
The warning notices were issued in late November, so the process of consultation with the individuals about the publication, including taking into account representations made, has taken about 2 months (including the holiday period).
Press release issued but not published on the website:
The FCA press office emailed a press release about the statements regarding the warning notices to press contacts which, with a somewhat disappointing lack of transparency, it has not published on its website.
Greater transparency that the FCA is taking enforcement action:
The statements deliver clear messages about the conduct which has given the regulator cause for concern and to that extent do deliver earlier transparency regarding those concerns (although these have already been well aired in the various sets of enforcement proceedings). When challenged about the warning notice proposals in October 2012, the then Head of Enforcement Margaret Cole told the Treasury Select Committee that the regulator was not proposing to announce investigations, but instead to make “a rather small move on what I will call the transparency dial, if you like – the balance between fairness to individuals and firms and the public policy considerations around protection of consumers and putting as much information as possible into the public domain”. The real message being delivered here is not to help protect consumers or highlight regulatory concerns to other firms, but rather that the FCA is taking enforcement action against individuals.
Contents of the notices:
The regulator has published a number of final notices in respect of firms in relation to failings in relation to interest rate benchmarks. These statements do not identify the firm concerned – which might potentially have enabled individuals to be identified. It is not clear whether, going forward, the firm will never be mentioned in such statements. There is also a risk that publication of details about a warning notice relating to an individual may be made at the same time as details of a notice which identifies their firm is published. In principle, it should be possible for the regulator to avoid this – it would seem wrong if the regulator were to adopt default position of identifying firms were effectively to negate the general principle that individuals would not be identified.
The statements contain an admirable disclaimer – highlighted in bold and in a text box to draw the reader’s attention – which makes it clear that warning notices are not final decisions of the FCA, are subject to further consideration in the light of representations, and that even once the regulator makes its final decision, the matter can be referred to the Upper Tribunal for its independent decision. This caveat has, inevitably, not featured large in the press coverage of the statements.