Tuesday, September 24, 2013

Regulatory corruption - Why the financial regulators are making the banking scandals even worse.

The UK financial regulatory agencies are failing in their public duties to protect the investing public and they are engaging in actions which are making the impact of the banking scandals far worse than they need be.

I am grateful to my friend Carol (she knows who she is and why I am thanking her) for permission to refer to a letter she has written to a number of very important and influential City figures regarding the reasons why the relevant authorities refuse to publicly discuss the details surrounding a number of criminal activities committed by major UK banks, quoting as a reason for refusal, ''the need to protect the commercial interests of regulated firms!"

As Carol is asking (quite reasonably) for details of these criminal activities for which the firms have been disciplined, to be made known publicly, it does seem worrying that wholesale criminal acts can be described as 'commercial interests', but there you have it.
Carol makes a very interesting and valid observation.

If you read the blurb which surrounds the mission statements of the financial regulators you will see that great emphasis is placed on trust. The FCA's website trumpets;

"...We want consumers to use financial services with confidence and have products that meet their needs, from firms and individuals they can trust..."

One of the key elements in ensuring that trust is the need to maintain full transparency when the institution concerned breaks the rules.

If my bank is guilty of breaking the law or the relevant rules of conduct, I want to know, and what is more I want to know the full details. I want to know all the gory facts, and I want to know the identity of who failed to comply properly, and I want to know on whose watch the relevant wrong-doing occurred, and why it happened.

Without this knowledge, how can I ever trust my banks and its managers, and more importantly, how can I be assured that such conduct will not happen again! What is more, I want to be able to lobby my CEO and demand that relevant wrong-doing be handled appropriately. I want evidence and data, I want to be informed, I want ammunition to throw at the well-heeled Board members as they trouser their next rise in emoluments, and I want action!

All too often, the regulators are conniving in secret dealings, in regulatory processes, from which little if any information is allowed out into the public domain, and so we, the investing public never get to know just how bad the situation has been inside the institutions in which we are expected to risk our capital. And that, I assert, is a corrupting activity!

Today, in the Daily Telegraph I read that Barclays Bank, (one of the most egregious of all the big players) has admitted that '...it was likely to suffer a £50 million fine for the handling of its Qatari bail out...'

Ok, that's alright then! Another hefty fine for Barclays bank, another drain on the pockets and goodwill of the shareholders, another public shaming for one of the leading criminal banks! Why on earth should we have any faith in this bunch of scoundrels, why should any of us believe that this gang of poltroons could organise a picnic for the Bullingdon Club?

And why are they being  fined £50 million?

Well, you see, there's the rub, because none of us are being told.

Barclays said on Tuesday it was contesting the preliminary findings of a British regulatory probe into its commercial agreements with Qatari investors who led a rescue fundraising of the bank during the 2008 financial crisis. Neither Barclays nor the Financial Conduct Authority (FCA) disclosed what the preliminary findings were. But the bank said it received them on June 27 and contested them five days ago.

If we don't know what they are, how can we make informed judgements on the rightness of the case against the bank, or the effectiveness of the regulators? Both sides in this debate are protected by this wall of silence, while we, the people whose funds are at greatest risk are treated like mushrooms.

This is all very convenient, because it means effectively that banks can engage in any amount of wrong-doing, until such time as they are discovered, and then, they can offer to settle for a discounted penalty rather than contest the issue. This policy of discounted penalties (which is the only thing the banks care or are looking for), means that the whole regulatory process has devolved into farce. The banks know that no-one on the management floor is going to prison for any amount of criminal wrong-doing, so it is merely a question of getting out from under at the cheapest price possible. It makes breaking the law all the more worthwhile.

The FCA and Britain's Serious Fraud Office (SFO) have been investigating for about a year the circumstances surrounding the Qatari cash injection secured by Barclays, which is struggling to restore its reputation after a string of scandals.

Qatar Holding invested 5.3 billion pounds ($8 billion) in Barclays in June and October 2008, helping it avoid a government bailout and associated stringent re-payment terms and conditions imposed on bailed-out rivals Lloyds Banking Group and Royal Bank of Scotland.

Hence, apparently the reports that Barclays has revealed it is facing a £50 million fine over claims it acted "recklessly" in its multibillion-pound bailouts from Qatar in 2008.

The Financial Conduct Authority (FCA) accused it of agreeing £322 million of secret payments to Middle Eastern investors to secure their support for cash calls totalling more than £5 billion at the height of the financial crisis.

For 'secret payment' you can read 'sweeteners' or 'backsheesh' or an old fashioned 'bung', the kind of behaviour which is a sine qua none when you deal with any Middle Eastern potentate, Crown Prince or loblolly man! In more modern parlance, the practice might be construed as being an alleged corrupt payment, and this is why no doubt the SFO has been investigating. However, the SFO has a track record of not going through with alleged bribery investigations when it comes to the denizens of the sandy quarter, so maybe we shouldn't be holding our breath too long or hard!

Barclays, which contests the FCA's findings, said the fees relate to advisory services over five years. It is being probed by the Serious Fraud Office and regulators in the US, and admitted it does not know how much the final cost will be. Barclays was warned about the potential fine on Friday and told shareholders today in a prospectus document for a rights issue that will tap investors for another £5.8 billion to plug a £12.8 billion hole in its finances.

The FCA ruling follows its £290 million penalty last year for rigging the Libor interbank lending rate.

Barclays said the FCA's warning notices state that the main purpose of the agreements was "not to obtain advisory services but to make additional payments, which would not be disclosed, for the Qatari participation in the capital raisings".

Barclays is alleged to have broken listing rules which impel it to disclose information and "act with integrity" to shareholders.

Quite frankly, this kind of alleged behaviour is what we had come to expect from the bank run by the former Capo di Tutti Capi, Sr Roberto Diamante. Under his less than benign regime, as we now know, the rule-book was shredded, the only rule remaining was make as much money as possible by whatever means going!

The bank turned to Qatari investors in 2008, helping it avoid the same fate as Royal Bank of Scotland and Lloyds, which were bailed out by the taxpayer. It may be mere sophistry to observe that Barclays may have been forced to this proposal to avoid having their books and records too closely exposed to public scrutiny, in case the public purse had been called upon to stand them up.

It entered "advisory services agreements" with the Qataris in June and October 2008, but the fees were not disclosed at the time.

Such words and phrases have been used as a classic money laundering tactic for many years, and they cover a multitude of sins, but hey, for a bank that literally wrote the book on criminal banking methods, why are we surprised!

We can say these things because Barclays bank has engaged in criminal act after criminal act. The fact that no-one in their management team has been sent to jail is due to the fact that the banking sector has the Government by the balls, and applies pressure, any time it looks like one of the banksters might be looking at risk of a criminal prosecution!

The bank revealed the latest blow as it warned it remains "cautious" about the trading climate. Barclays also warned it may not be able to meet the Prudential Regulation Authority's (PRA) demand that it strengthen its balance sheet by next summer.

The watchdog has ordered it to bolster its leverage ratio - a key measure of financial strength - to 3% by the end of June 2014.

But Barclays warned it may be unable to meet these demands - aimed to prevent future taxpayer bank bailouts - if various fundraising plans are derailed or regulators move the goalposts.

These are the usual flabby threats issued by these dodgy banks who want to avoid the financial consequences of their criminogenic conduct in recent years. They resort to a kind of financial blackmail by threatening the regulators that their requirements are too onerous, all the time pushing back against the rules designed to make them a safer place to do business with.

And it gets even better!

The lender warned multi-billion pound provisions to compensate customers mis-sold products could rise even further. It has set aside about £4 billion for mis-sold payment protection insurance and £1.5 billion for complex interest rate swaps sold to "non-sophisticated" small businesses such as bed and breakfasts. But Barclays said the eventual costs of the scandals could "materially differ".

"Barclays expects further developments in the near term," it said of the probe, as it announced a 5.8 billion pound rights issue to plug a capital reserve shortfall.

"Barclays is co-operating with all the authorities fully. It is not possible to estimate the financial impact upon Barclays should any adverse findings be made," it added.

The U.S. Department of Justice and the Securities and Exchange Commission have also opened an inquiry last October into whether Barclays' third-party relationships, which help it win and retain business, breach anti-bribery rules.

Barclays said on Tuesday the two US authorities were also investigating the commercial agreements with Qatar, while the US Federal Reserve is keen to be kept informed.

The deal with Qatar was controversial from the outset. Shareholders were angry that Qatar Holding, which is now the bank's biggest shareholder with a 6.7 percent stake, was offered more attractive terms than existing investors.

Barclays has also said in other reports that it would vigorously defend itself against fines worth around $470 million by the US Federal Energy Regulatory Commission (FERC), which alleges the bank manipulated electricity markets in and around California from November 2006 to December 2008.

So, we are back to square one again with Barclays bank. Frankly, why anyone is willing to open an account with this bunch of crooks is beyond me.

It used to be said that the biggest disincentive to regulatory abuse was reputational risk! Will someone please tell me what reputation Barclays bank has left to hazard? Surely the regulators can see this? Surely they must realise that all the time they pussy-foot around agreeing to secrecy deals every time a bank is caught with its pink flabby bits in the mangle, the bank is just laughing all the way to the discounted fine. Agreeing to these secret deals is just compounding the felony,  and corrupting the process along the way!

4 comments:

H Romero said...

The view stated here about Regulatory corruption it real one. Thanks for such a fantastic post.. Regards from Mobile Marketing

Unknown said...

Intriguing figure £322 million.

A signal ?

322 = Bonesmen

lifeafterdebt said...

Another really great post. Keeping the truth from us to ensure the banks are perceived as trustworthy makes those who are concealing the bankers criminality complicit to their crimes. I am still battling with the FOS to use their non existent teeth to force HBOS to release documentary evidence they are required to supply under my DSAR. After the FOS have once again "lost" my file,I am now waiting for 8 more weeks for the FOS to decide if they have the power to take HBOS to task for withholding the documents I need to progress my case. My complaint has been festering in no mans land for more than three years now and I can only assume it is another example of regulatory complicity being used to con the public and the banks victims. http://lifeafterdebts.blogspot.co.uk/2013/06/ridiculous-solutions.html

AbogadoNZ said...

Great piece Rowan.

Here's a though. If the shareholders are OK with the current levels of fine - which they seem to be - then it is clear the fines are very inadequate. Solution; raise the fines and financial penalties 10 fold. That would get the attention of those who are being forced to pay. Yes it will impact those living on fixed incomes but at present a great many of them are supine and do little more than say; "what can I do?" Surely the issue is to get the message out that this is fixable and if not fixed will happen again soon. Left as it is there is a huge temptation to say it happened in 2008 and it's now 1013 let's forgive and forget.