UK Regulator Shocked That Slapping Banker Wrists Achieves Nothing

Not a quarter passes without a bank announcing, as part of its earning statement, that - it just so happens - it has incurred a few hundreds million (or billion) in legal fees, expenses and charges for breaking the law and manipulating this market or that (recall that for banks "Crime Is Now An Ordinary Course Of Business"), but it's ok, because it is a one-time, non-recurring thing, so please exclude it from the EPS calculation.... Until the next quarter when everything repeats once more. But the repetition of "one-time" events is not the only constant: the other one, of course, is that nobody ever goes to jail.

The latter is also the reason why, as the WSJ reports, British regulators are "getting exasperated with banks failing to clean up their act after repeated wrongdoings."

No, really: the UK's equivalent to the SEC truly can't understand how banks, which have trillions in central bank reserves sloshoing around on their balance sheets as the replacement to trillions in taxpayer bailout funds, and which are delighted to use said reserves to pay for hundreds of billions in legal fees in order to avoid prison time for financial crimes, market manipulations and countless other legal transgressions which their executives were caught doing, refuse to stop breaking the law when the have a paid for by others - and quite literal - get out of jail card.

The FCA's so-called quandary in a nutshell: "Following the £1.1 billion ($1.7 billion) of fines it doled out to five banks over misconduct related to foreign exchange rate rigging, Tracey McDermott, head of enforcement at the Financial Conduct Authority, said: “Is our action effective at all?

The answer, clearly, is no. But hey, maybe the next wristslap will fix everything and the New Normal criminal syndicate, i.e., bankers. will promptly fix their ways.

On Tuesday Ms. McDermott said she had recently looked though the slew of statements put out by punished banks dating back to 2002. They read like a  “PR paint by numbers,” she said. The press releases all state that the wrong doing is linked to a few employees, changes have been made and that it won’t happen again.

 

But “lessons are not being learnt,” she said.

 

She was speaking at a conference in London on legal enforcement.

Here is Tracey McDermott confused that
"Lessons are not being learnt."

Surely, there were also hundreds of bankers at said conference, smiling gleefully at what the past 6 years have demonstrated beyond a reasonable doubt, is unconditional banker immunity from prison time. In perpetuity.

The recent foreign exchange debacle has cause particular consternation for the regulator. In 2012 and 2013 several banks paid fines for misconduct relating to rigging interbank lending benchmarks. At the time many pledged to reform their rate setting practices more widely.

 

But Barclays traders manipulated  gold prices the day after the bank was fined over efforts to rig interbank lending rates, according to the FCA. It is now clear that employees at some lenders, such as Royal Bank of Scotland Group RBS.LN +2.39% PLC, continued to try to rig foreign exchange markets even as these internal clean up operations were ongoing, the FCA found.

So what is the FCA's solution? Well, just like central planners, central bankers, and clueless Princetonian economists, the FCA has a brilliant idea - let's do more of the same and hope this time it's different.

Ms. McDermott said that big fines must continue to be meted out to keep bank boards focused on changing their institution’s culture. She refuted claims that the FCA’s approach to fining was “like a soviet tractor factory” — referring to accusations that the regulator was just churning out fines to appease policitians — saying that London’s reputation as a financial center was at stake.

 

“Enforcement should not be written off as a trip to the headmaster’s office where you take your punishment and leave,” Ms. McDermott said.

 

Lessons are being learnt. Slowly. The FCA hopes that banks will change in the same way that attitudes to drink driving have altered over time. Ms. McDermott said her parents’ generation didn’t drink and drive for fear of getting caught. “For my generation it was presented as a moral issue… the impact on the lives of other people.”

So according to the FCA, the one thing that should stop banker crime is concerns over the loss of their pristine reputation. Yes, for those wondering, the FCA does resides on this world, a world where bankers at least in the eyes of the FCA, still have something called a "reputation" which is "at stake."

Which also explains why said reputation will continue to get worse until even organized crime syndicates will bristle when compared to the most criminal, pardon, lucrative M&A bank or hedge fund du jour.

In the meantime, if the FCA, or SEC, or DOJ, or whoever, really wants to "fix" the rampant, criminal banker problem, here is a simple solution: throw someone in jail for a long, long time, and stop showing to the world that one can avoid prison if only one pays a large enough fee (out of other shareholders' funds).

Better yet, take a clue from Iran:

"A billionaire businessman at the heart of a $2.6 billion state bank scam in Iran, the largest fraud case since the country's 1979 Islamic Revolution, was executed Saturday, state television reported.... A total of 39 defendants were convicted in the case. Four received death sentences, two got life sentences and the rest received sentences of up to 25 years in prison."

And guess what: nobody in Tehran has rigged the USDJPY, ramped the E-mini, or banged the close in gold in years.