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How long until public trust can be restored in the financial system?

November 24th, 2015 - Posted by Doireann Clabby in Anti-Bribery And Corruption

The Serious Fraud Office (SFO) has charged ten individuals with conspiracy to defraud for their alleged part in the manipulation of the Euro Interbank Offered Rate (Euribor).

The 10 bankers – six employees of Deutsche Bank and four from Barclays – are the largest group of people to face prosecution in the ongoing investigation into the global rate rigging scandal to date.

The action is the first brought over manipulation of Euribor but is merely the latest in a series of probes which started out with investigations into rigging of Libor.  Barclays became the first bank to be charged in connection with the Libor scandal in July 2012 and the SFO joined the global investigation into rate rigging shortly afterwards.

In August, Tom Hayes, a 35-year-old former derivatives trader at Citigroup and UBS, was convicted of eight counts of conspiracy to defraud and sentenced to 14 years in jail at Southwark Crown Court.  Hayes's conviction was the first from the SFO's investigation into rate rigging.  He had worked at UBS until 2009 and then at Citigroup until 2010.

It is now almost seven years since the start of the financial crisis and a number of surveys have indicated that public trust in the banking industry has yet to recover.  The sector is trying to rebuild that trust with increased capital requirements to insure against the failure of more banks, a new spirit of openness at the Bank of England, and the ring fencing of high street banking from investment operations.

But ongoing investigations in the UK, Europe and the US into what appears to be systemic foreign exchange rate rigging continue to undermine those efforts to restore trust.  Those investigations stretch far beyond exchange rate rigging, with a number of cases ongoing and some banks being issued with large fines:

  • Regulators in the US have widened their investigation into money laundering at Deutsche Bank's Moscow operation to possible sanctions breaches.  Last month, the US Justice Department and New York Department of Financial Services increased the scope of their investigations into Deutsche Bank after allegations that some of its clients in Russia had breached western sanctions over the annexation of Crimea.  It is alleged that more than $6 billion may have been laundered by some of the bank's clients.
  • New Zealand's Reserve Bank accused the country's Kiwibank that the organisation had not complied with anti-money laundering and terrorist financing regulations, because it had not carried out effective customer due diligence nor did it carry out adequate checks on the source of customers' wealth or funds.

In the past seven years, 20 of the largest banks in the world have been fined more than £151 billion ($235 billion) for breaching financial regulations.  Those breaches included manipulating exchange and interest rate markets, as well as compensation for customers who were wrongly sold mortgages in the US and payment protection insurance in the UK.

Banks say they are working hard to rebuild the trust of customers and regulators, but trust may be hard to come by until the investigations into fraud on a massive scale are completed and the guilty brought to justice.

The top 10 fines in banking
Banks may be working hard to rebuild the trust of customers and regulators, but just how much trouble have they been in recently and what for?

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