Now before anyone gets excited about the specter of bankers doing a perp walk, the early word in a Wall Street Journal story on criminal charges being readied against former Barclays bankers says that the prosecutions will target “midlevel traders.” This exercise thus continues the established pattern of small fry serving as human shields for managers and executives.
As anyone in finance knows, just going after the little guys, while better than nothing, is hardly adequate. Senior executives get paid on the profits (or more accurately, the apparent profits) of the activities in their purview. And as we’ve also discussed (long form in ECONNED, but also often here on this blog) risk management and other control functions are too often politically weak by design. Even if the staff in those areas are making an honest effort at doing their job, their real function is often to serve as a fig leaf for management (“look, we had all the box checking stuff required by the law in place. It’s not our fault if some rogue employees were savvy enough to game our systems”). And on top of that, the incentives for the staffers in these units is frequently to curry favor with the producers. For instance, risk managers have technical skills but make less money than traders and often the folks who do trading analytics. So they have every reason to try to impress trading managers in the hopes of getting plucked out of risk management rather than riding herd on those producers.
Similarly, at Standard, the order by New York State’s Benjamin Lawsky revealed that the bank’s legal department was working aggressively to circumvent money laundering rules rather than enforce them, even when outside counsel told them they needed to clean up their act.
Things have gotten so topsy-turvy that a colleague has joined a major financial firm in a compliance role working for the head of a major product area. His job is to tell his boss what he can and can’t do and be firm about it. And based on his experience so far (more than a year) his boss seems to be tough about compliance. Why would a producer type be so concerned? Normally, you’d expect a guy like him to be fighting with firm-wide compliance. Apparently this top manager is concerned that if anything bad happened in his unit, he’d be thrown under the bus by top management. So while this is something of an improvement on the old status quo (of anything goes if you can blame low level staff), it still shows that top level management aren’t doing their jobs at these firm, of having serious controls in place, because they know they won’t be the ones who suffer much if a scandal arises.
From the Wall Street Journal:
U.S. and British authorities are preparing to bring criminal charges against former employees of Barclays PLC for their alleged roles trying to manipulate benchmark interest rates, according to people familiar with the plans, marking an escalation of a global investigation now entering its sixth year….
It isn’t clear which former Barclays employees are likely to face charges, or what the charges would be. A Barclays spokesman declined to comment….The current probe appears to be targeted at midlevel traders, not top-level executives, according to the people familiar with the planned charges.
It’s a safe bet that the traders who will be charged won’t be as big kahunas as
Mark Tom Hayes, who is one of two UBS traders being prosecuted by the US, who was described as a “major trader” and the FSA had deemed UBS’s violations to be “considerably more serious” than those at Barclays. In other words, this move looks more to be about generating sound bites and appeasing a public that is sick of the lack of banker prosecutions than in producing real changes in conduct.