The number of Financial Services Authority bans peaked in the year ended in April 2011, with 71 people excluded from the banking and mortgage industries. That was up from 56 the previous year while the number declined to 47 in the year ended April 2012, according to the regulator’sannual report published today. The agency banned only four people in 2003.
The use of stricter penalties comes as bankers remain pressured by forces stemming from the financial and sovereign debt crises. European lawmakers have introduced legislation to cap bonuses, and employment in the London financial industry may fall to its lowest levels in 16 years.
The bans “should be used as a weapon of last resort,” said Arun Srivastava, the head of the financial-services group at thelaw firm Baker & McKenzie in London. “You have to think about the impact on the person being prohibited, because that’s the end of their career.”
In addition to a 2.87 million-pound ($4.5 million) fine, the FSA banned Ravi Shankar Sinha, the former chief executive officer of JC Flowers & Co.’s U.K. unit, in February for faking invoices. Alberto Micalizzi, the founder of the collapsed hedge fund Dynamic Decisions Capital Management Ltd., was given the same penalty in May for misleading investors along with a 3 million-pound fine.
Libor Ban Threat
The regulator has also threatened at least one former trader with a possible lifetime ban in its investigation of the possible rigging of the London interbank offered rate and other global interest rates, a person familiar with the situation said.
In a separate case, the regulator is seeking to ban Anthony Verrier, the executive managing director of BGC Partners Inc., after a court found he induced brokers at competitor Tullett Prebon Plc to breach their employment contracts. Verrier is appealing the FSA penalty at a finance tribunal in London.
The FSA, which will be spilt into two separate regulators at the end of this year, was heavily criticized by lawmakers following the 2008 financial crisis for failing to crack down on wrongdoing, including insider trading. Its “light-touch” regulation model during the boom times was widely blamed for allowing banks to take unnecessary risks.
‘Credible Deterrence’
The bans are “a reflection of increased enforcement across the board,” said Chris Hamilton, an FSA spokesman in London. “It’s part of the credible-deterrence strategy.” The regulator also has the power to file criminal charges and levy fines.
The increase may also be related to smaller trading firms and hedge funds opening in England, said Arno Chakrabarti, a lawyer at Allen & Overy LLP in London.
“There are always new shops springing up with assets under management, so there’s a wider base of people and more smaller firms that don’t have the large compliance departments that the big banks do,” Chakrabarti said.
The lifetime bans doled out by the regulator may not be fully reflected by the data on the FSA website, Chakrabarti said. Some traders cut deals to never seek employment in the industry to avoid publicity while others who are fired by their employers for trading violations are effectively blackballed by the regulator and are unlikely to receive formal approval to work if they find another job.
‘Tough Stance’
“Compliance teams are becoming far more assiduous in investigating and taking a tough stance on trading offenses,” said Jo Keddie, an employment lawyer at Winckworth Sherwood LLP in London. It “obviously impacts any financial employee’s ability to continue with their career.”
Getting around the bans generally requires moving to another country outside the FSA’s jurisdiction.
Steven Perkins, an oil trader banned for five years for trading while in an “alcohol-induced blackout,” was hired by Starsupply Renewables SA in Switzerland to write training materials in Geneva for graduate recruits. Starsupply, now a unit of New York-based GFI Group Inc., said at the time that Perkins “is a good man, who did a stupid thing,” and it wanted to give him a chance to rebuild his career.
Sachin Karpe, a former desk head at UBS AG’s wealth- management unit in London, moved toIndia’s Altamount Capital Management while he unsuccessfully fought a lifetime ban for making as many as 50 unauthorized trades from client accounts.
Swiss Escape
“It’s not surprising that someone’s off to India or off to Switzerland,” Srivastava said. “You’ve got some guy earning X- hundred thousand pounds a year, suddenly he’s dismissed, it doesn’t leave him many options.”
Some traders may skirt the bans by finding consulting jobs that don’t require regulatory clearance. Perkins’s new position wouldn’t have required FSA oversight if it was in the U.K.
“You can do things in finance that don’t require FSA approval,” said Chakrabarti. “Finding clients doesn’t, so if your job is originating deals, you can continue to do that. A prohibition order isn’t supposed to make people unemployed forever.”
The FSA doesn’t limit the bans to wealthy bankers. A disproportionate number of the penalties are imposed on mortgage brokers and traders at small firms who don’t have the resources to mount a defense, said Tim Dolan, a regulatory lawyer at Pinsent Masons LLP in London.
Some of the FSA’s highest-profile penalties — against Greenlight Capital Inc. Chairman David Einhorn, former JPMorgan Chase & Co.’s global chairman of equity capital markets Ian Hannam, and Credit Suisse Group AG head of European credit sales Nicholas Kyprios — didn’t include bans.
The increased use of lifetime bans “is a useful deterrent,” but “ideally one would want to see a more consistent treatment,” Dolan said. “The FSA wants to be proactive, and at the end of the day, they still hold the pen in terms of deciding who can be an approved person in the future.”