Regulating the criminal banks in the future and why Standard Chartered Bank deserve a really good kicking!

On Monday 1st April 2013, the Financial Services Authority ceases to exist. Good riddance! I shall not be sorry to see it go.

As a financial regulator, it has been a signal failure and it's regime has been hallmarked by an era of regulatory mismanagement and moral cowardice. It has singularly failed to properly understand the nature of the regulatory requirement, and it has not stood up to the bullies and the powerful banksters who have repeatedly thwarted any of the FSA's best ambitions. This is hardly surprising when so many bankers and Big 4 consultants have been seconded to make up its policy deciders. Its Chairman, Lord Turner, has already scuttled off to join George Soros in New York and taken the chance to trouser another cushy pay cheque, which should make his new job of thinking great thoughts of financial market behaviour, all the more congenial!

Only a few weeks ago, he was admitting to the Commission on Banking Culture that even after all these scams and frauds, he had never once considered training his FSA staff who investigate financial crime, in the history of financial criminality in the hope that they might have gained some experience from the process! Now, a few weeks later, he will soon be promoting deeply intellectual thoughts on how to operate the financial community of the future. Just goes to prove if your face fits, and having a peerage must help, it doesn't matter how big a failure you are, there will always be someone to pick up the pieces and shoe-horn you into another cushy job. He must have been negotiating this move while he was still responsible for the FSA's activities, but let's not quibble about technical niceties.

Why should we blame him, he had nothing to follow. From inception, the FSA's unwillingness to take a firm, pragmatic stand against the activities of the criminals who habituate the Square Mile was made clear, by the craven attitude of its first Executive Chairman, Sir Howard Davis, who presided over the formative years of the FSA from 1997 to 2003. During this time, he made it clear to his staff that he had no appetite for prosecuting financial criminals.

How can I say this so clearly, well one of his senior staff told me so in an interview in 2000. He said to me;

“…There is an anxiety about the new criminal functions which we are being tasked to accept…various elements such as insider dealing, market manipulation, etc, all tend to colour our internal philosophy towards the question of conducting prosecutions. You really should understand, because of the difficulties associated with obtaining convictions in the criminal courts, there is no unswerving acceptance of the need for wholesale prosecution powers…”

This answer was given in such an open way, in contrast to so many other answers which he gave, that he was invited to state why he was so sure that this was the case. His answer was studiously revealing, and must be considered to contain a huge degree of truth. He said;

“…Because, frankly, Howard Davies has no intention of ending up with the sort of reputation which so bedevilled the SFO in its early days. He refuses to be tarred with the same brush as Barbara Mills or George Staple…”

I have been making these observations for many years now, writing and blogging, and hoping that the scandalous inability of the FSA to do its job properly, would be recognised. All I have done is brought down a regime of opprobrium on my own head in so doing.

I have been privately described as a 'brand liability', on the basis that anyone who employed me would be blackballed by the City Establishment. My name was taken off a list of speakers at a major public banking compliance conference because as the Conference owner said, '...none of the clients we want to pay to come to this event will come if they know he is speaking...' I have been shouted down at a regulatory workshop and prevented from speaking openly by the delegates present, and my evidence to the Parliamentary Commission on Banking Standards was conveniently 'lost' and not submitted for consideration to the Commission, until the very last minute, and only after I had raised the issue with the Chairman, and when it was too late for me to give evidence. A pre-arranged meeting that had been booked by a Bank of England Mandarin for me to meet him and discuss anti money laundering concerns, was mysteriously cancelled at the very last minute, the explanation being that it was considered to be inappropriate to be meeting me at that time, but there is no sign it will be reinstated.

I have no complaint, I merely report these facts for your information. I really don't think that anyone who adopts the position I have taken about banks, banksters and organised crime in the banking sector, can expect to be liked by those whom he targets, nor do I expect them to treat me any differently. They have exhibited all the traits and culture expressions of criminogenic actors for so long, it would be naive to expect them, to behave any differently, and I may be many things, but naive ain't one of them!

So, you can imagine my fascination to read today in the Sunday Times, an article written by David Davis entitled "...The watchdogs in need of a good kicking - Our bloated, toothless regulators must be leaner and tougher..."

 He states:

"...In recent years we have seen what happens when industry regulators fail. The Financial Services Authority was asleep as big banks borrowed colossal sums against depositors’ savings, defrauded customers by mis-selling insurance, and grew so large that their collapse was averted only with hundreds of billions of pounds of taxpayers’ money..."

"...The Financial Services Authority was complicit in the crisis that the financial sector created. It encouraged institutions to circumvent unfavourable foreign regulation, and signed off the RBS takeover of ABN Amro that saw the bank collapse. Given that the authority at that time was dominated by people from the banks, it is no wonder the industry’s policeman became its accomplice..."

"...In banking, we will achieve nothing with more and more increasingly complex rules. We need a return to the basic principles that once gave Britain a healthy financial services sector: strong competition between banks, lower barriers to entry for new banks, more lending from deposits rather than leveraging the balance sheet and the breaking up of nationalised banks that have become too big to fail..." 

"...There is room in the British marketplace for up to 30 efficient banks. That would deliver more competition, better service and less financial instability than we have with the Big Four. Our regulators should be smaller and tougher. As institutions, they should be ferociously independent both of government and the industry they are supposed to police. How can we expect our financial regulator to protect consumers if it is dominated by senior bankers..?"

How can we indeed, so, thank you David Davis for repeating much of what I have been saying for some years. I mean it's not as if Davis is just a former detective after all! What do they know? The financial establishment can always ignore them because it is so easy to marginalise them, because no-one likes policemen, do they? Perhaps, the Establishment will now begin to take some notice when an M.P and a member of the political elite speaks out! If they do, then the new Regulator could make a really good start by focusing on giving Standard Chartered Bank a good seeing-to and make them realise that when a bank enters into a Deferred Plea Agreement with a Sovereign State, the process is one which needs to be respected and adhered to in the fullness of its outcomes. 

Standard Chartered was rocked last summer when the New York state's department of financial services accused it of hiding $250bn of sanctions-busting transactions that left the financial system vulnerable to "terrorists" and "drug kingpins" in the six years up to 2007.

Standard Chartered insisted it did not breach sanctions to the extent alleged and settled with the regulators for a smaller breach of the rules, which also included a deferred prosecution agreement to avoid potential criminal sanctions.

At a recent public meeting, questions were asked concerning individual employee conduct and compensation following the deferred prosecution agreements. the Chairman, Sir John Peace had replied, when asked about bonuses for executives: "We had no wilful act to avoid sanctions; you know, mistakes are made – clerical errors – and we talked about last year a number of transactions which clearly were clerical errors or mistakes that were made."

This wilful refusal to acknowledge the truth of the Deferred Prosecution Agreement resulted in an immediate riposte from the US Authorities, and last week, Sir John Peace, was forced to retract his comments describing the breaches as "clerical errors" and apologised for describing them as not "wilful acts" after US regulators were infuriated by his comments at the bank's full-year press conference.

There are some, who like me, will still think that SCB are sticking two fingers up at the US Authorities, by the way in which they have enriched their executives with bonuses and reward payments, following the Deferred Plea Agreement.

In recognising the severity and the seriousness of the DPA it would be appropriate for the bank to make a significant withdrawal of bonus payments for senior executives. Bonuses should be for good work, well done and properly and honestly delivered and in withdrawing such payments, the bank would have sent a vital message. In so doing, they would be acknowledging, both financially and psychologically that their conduct was wrong, that they were guilty of grave criminal offences, and that their egregious behaviour was worthy of significant public and personal opprobrium. Such a series of actions would be an acknowledgement of the importance of the DPA, and would have been an important signal to the rest of the world that SCB recognised their criminal guilt and were willing to both say sorry in the only way a banker can, but also do so openly and transparently.

But in the bank's annual report, published on Thursday, Ruth Markland, the non-executive director who chairs the remuneration committee, explained why it was not necessary to reclaim bonuses. "The committee carefully considered whether the circumstances were appropriate to exercise the clawback of past awards in respect of 2001 to 2007. We concluded that it was not," she said.

That's all, that's it, we concluded it did not, so bollocks to you!

"In reaching this conclusion, the committee also noted that income and profits from the matters that were the subject of the settlements were immaterial, and therefore did not inflate any prior bonus payout in any material manner."

So fuck you, the US Justice Department, fuck you the American Authorities more generally, and a big fuck you to the New York Department of Financial Services. 

This will teach you to think you can play hardball with a British bank, because we will pay ourselves as much money as we want, when we want and where we want and you can stick your DPA where ever you feel like it, because it means nothing to us. 

And this is the entirety of the problem, and it is something that the new Financial Conduct Authority needs to address as a matter of urgency. They need to take a very severe line with SCB, if for no other reason, than to demonstrate to their US colleagues that the FCA will support their findings of gross misconduct and will support the importance of the lesson of the DPA.

Standard Chartered paid its top 16 bankers almost £65m last year. 

No one at Standard Chartered had their bonus clawed back last year – when the bank was fined £415m for busting US sanctions with Iran and other countries and paid its top 16 bankers almost $100m (£65m).

Under the totals provided by Standard Chartered, which include the value of share awards made to directors during the year, the six members of the board received $41m, the largest total of which went to Mike Rees, who runs the wholesale bank and who received $12m. He has earned $52m in the last four years, according to Reuters. Last year the total for all board members was $37.8m.

The bank, which employs 97% of its staff outside the UK, also provided anonymised details of its 10 highest-paid bankers who are not executives. They received a total of more than $50m; the highest-paid of them received $9.4m.

So there you have it. The DPA means nothing to SCB, as far as they are concerned, it's business as usual. Oh, and by the way, just in case you were wondering, Richard Medding – thought to be the banker who exclaimed "you fucking Americans" when warned about the potential violations of sanctions – received $5m. 

The bank insists the quote is inaccurate.

Like Mandy Rice Davis once observed; 'They would say that wouldn't they'!

This week on 4th April, I am talking at the Friends Meeting House in Manchester on the topic of '...How the Banks Gambled Away Your Children's Future..." If you can, do come! More details at http://www.facebook.com/events/490230637696863/