Let them eat humble pie: Barclays Bank Plc in the dock

Mar 6, 2018

Charges against Barclays Bank Plc were laid in February 2018 extending the ambit of the SFO Prosecution which had already charged the parent company (Barclays Plc) and four senior executives for conspiracy to commit fraud and providing unlawful financial assistance during a capital raising. Crucially, the charges against the operational arm of the British banking behemoth could now endanger its licence to provide banking services.

The charges broke new ground in many respects not least because, as many in the financial press have observed, they are the first real major criminal prosecutions to emerge from the financial crisis of 2008 which brought the western banking world to its knees.

Much has been written about the apparent failure of any significant regulatory response to the crisis given the impact it had on the public and particularly on those who struggle on its margins and are often, in a very real way, only 2 to 3 pay packets from sleeping rough. Indeed, if there is one thing that we can be certain of, it is that in the course of a bruising decide of enforced austerity, successive governments in many western democracies have severely underestimated the bitterness of those who feel they have been let down and left behind.

For those that did see the writing on the wall, it was not hard to encourage the channelling of that anger and disaffection to contribute to flashpoints such as Brexit and the stunning Trump victory in the US.

To be fair to the SFO, the charges follow 5 years of what was an undoubtedly dogged and wide ranging investigation. But the targeting of executives is interesting in such a climate. One can only speculate about the ambitious aims of the prosecution of the big guns (including the former chief executive) but it does come after a series of bank scandals that have exposed the apparent trend of banks cauterising the regulatory rot and then pulling up the drawbridge for those in the upper echelons (and ultimately arguably responsible for the culture prevailing in those institutions) while leaving the lower hanging fruit to the mercy of the regulator.

The batters and bruises the SFO experienced in successive LIBOR trials  and the FCA’s less than stellar report card for the enforcement response to the HBOS collapse encapsulated in the Green Report as well as its failure to harpoon a handful of high profile targets threw into sharp focus the criticism that the regulators were not attacking the root causes of bad behaviour or aiming their focus sufficiently high to actually enforce and penalise those with power and responsibility in the banks.

The Senior Managers and Certification Regime (“SM&CR”) arising from the Parliamentary Committee on Banking Standards sought to address this. Some would say it goes too far in potentially scaring skilled individuals from accepting what is now an extensive ambit of responsibility. Potentially huge numbers of bank employees will ultimately answer (through various layers of bureaucracy) to one Senior Manager. That Senior Manager, thanks to the Responsibilities Map, may ultimately have to answer and establish that an employee’s bad behaviour is not as a result of their failure to properly supervise and monitor that individual. A change of this kind was surely inevitable with the often opaque nature of reporting lines in big financial institutions and a lack of tangible evidence often being cited as reasons not to pursue managers. The regulators remain hopeful that this will not negatively affect the qualities of the candidates who do accept such positions. It is interesting that the new regime and the strengthening of rules on whistleblowers has thrown the current Barclays CEO into the spotlight for apparently attempting to unmask one.

Coming back to the criminal trial, it will indeed be an interesting and ambitious prosecution with each defendant set to fight to the end. The conduct itself could not be said to be a causal link in the crisis, the seeds of which were sown many years previously by lax government regulation in the US particularly and canny structuring of complex financial products that too few properly understood and too many professed falsely to understand. However, the conduct, if proved, would be an arguably serious deception on the market.  

So this is not an attack on the architects of the crisis necessarily but it must be seen as an attack on the banking elite who, and in spite of the perhaps unfair generality of the term, arguably failed so spectacularly 10 years ago. In weighing up the charges the SFO would have borne in mind both the evidential (sufficiency of evidence) and the public interest tests. What will this prosecution mean fundamentally though? For all the musings on the public anger at banking it is difficult to imagine many of those struggling day to day caring overly about whether the Barclays senior executives go to prison for alleged shady financial dealings aimed at avoiding a public bail out. They want systemic change; an end to austerity and a sense that the difficulties of the recession are being shared more fairly. This is a far more complex problem.

But the general deterrent factor cannot be understated and the appetite of the SFO in charging the operational arm of Barclays and potential threatening its licence to make money would no doubt send a shockwave through Compliance departments already dealing with the SM&CR. It just got a lot scarier to be a banker.

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About Catherine

Catherine is a solicitor, with a background in corporate regulation and investigations. Catherine graduated with degrees in Law and Asian Studies from La Trobe University in 2007 and was admitted to practice in Australia in 2009 following completion of a post graduate diploma of Legal Practice at the College of Law, Victoria.