Cleaning up the City

Lawyers have warned that regulators may take an “aggressive approach”, following the Chancellor’s proposals for new criminal offences to curb manipulation of the financial markets.

Chancellor George Osborne announced plans this week in his Mansion House speech to tackle rogue traders, extending existing LIBOR legislation to make it a criminal offence to rig the foreign exchange, fixed income and commodities benchmarks.

Richard Burger, regulatory partner at RPC, says: “The number of prosecutions achieved by the regulators with their new powers will be seen as the yardstick of their success.

“This will put them under a huge amount of pressure to achieve results and almost guarantees a highly aggressive approach. The SFO’s director, David Green, has said he expects to be judged by the results of the agency’s prosecutions of those involved in LIBOR and now the same will be true for future foreign exchange manipulation.

“The introduction of new criminal charges will mean that businesses will feel compelled to increase the already substantial investment they make in compliance for foreign exchange and other fixed income trading teams.”

Andy McGregor, RPC banking litigation partner, says: “The banks are already under a huge amount of regulatory pressure in relation to manipulation of the foreign exchange market, but in financial terms the banks face a similar risk as regards civil litigation from pension funds and other fund managers that lost money because of FX manipulation if there are adverse regulatory findings.

“If regulators find that the banks sought to manipulate FX benchmarks it will be much more straightforward for fund managers to demonstrate that they lost money than it was with Libor, so we anticipate a much larger number of high value disputes against the banks.”

The Chancellor announced a 12-month Fair and Effective Markets Review will be led by Bank of England deputy governor for markets and banking, Minouche Shafik, with Martin Wheatley (chief executive officer, FCA) and Charles Roxburgh (director general, Financial Services, HM Treasury) as co-chairs.