In a rational world, the customers would move their business to firms with higher standards. That is not going to happen because investment banking is almost a closed shop. The five firms involved in today’s settlement plus Barclays, which is yet to settle, are six of the biggest banks in the world.
But if fines (paid by shareholders anyway) don’t improve behaviour, and if bank managements can’t, or won’t, police their trading floors competently, what’s left? Criminal convictions for fraudulent behaviour are one great hope – rightly so because the threat of time in jail is the surest way to concentrate minds on trading floors. We wait to see what the Serious Fraud Office delivers.
But regulators must also look beyond endless fines. The FCA, we are told, considered imposing suspensions on the banks from trading forex on behalf of clients but decided against. Some of the offending acts were considered too ancient and there was a fear of disrupting a critical financial market.
OK, but a three-month temporary ban on trading forex would improve behaviour faster than any fine. Managements would fear being sacked. Shareholders might wake up and demand proof of root-and-branch reform. Or big banks might break themselves up into easier-to-manage units.
A VERY interesting idea. The banks would have to bear the cosy high fixed costs of the staff but the penalty just might encourage shareholders to take some action.