Regulators get twice as long to investigate City misconduct


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The Independent Online

The legal time limit forcing watchdogs to act against some City miscreants within just three years of discovering misconduct in the City doubles today.

Amid a rising tide of big, complex and often multi-jurisdictional investigations, the move will afford both the Financial Conduct Authority and the Prudential Regulation Authority some much needed breathing space.

They will now have six years to issue “warning notices”, an important step with formal legal consequences because it serves as a statement of intent by a watchdog and can be challenged.

As well as the ongoing investigation into alleged manipulation of foreign exchange (forex) prices, the FCA is still wrapping up its work on allegations that traders at a number of banks sought to manipulate Libor interest rates.

Lloyds Banking Group is expected to the next bank to settle with regulators on both sides of the Atlantic, but it won’t be the last.

Other benchmark prices within the City’s dark corners have also attracted scrutiny including energy and metal prices.

Watchdogs face added complications in bringing cases in these areas because like the Forex market, they are unregulated although charges can be brought against individuals and institutions under the FCA’s principles of business requirements.

The Forex probe faces an added complication because of the criminal investigations being overseen by the Serious Fraud Office.

In an interview with the Reuters, David Green, who heads the fraud busting agency, said individuals could face charges over the affair as soon as next year. 

Mr Green announced on Monday that the UK’s fraud busting agency would join US prosecutors and regulators in investigating the allegations of misconduct in the $5.3 trillion-per-day market, which is the world’s biggest.

He told the news agency that he had “reasonable grounds” to suspect that an offence of serious or complex fraud was involved.

And he added: ”I think it would be ambitious to expect charges this year but ... I wouldn't discount that possibility (next year) at all,“ he said.

”We're (currently) having a fairly focused inquiry into a limited number of individuals and a limited number of financial institutions, including banks, and we'll take that as the first phase and see where we go from there.”

Around 40 traders, including those from Barclays, HSBC, and Royal Bank of Scotland, have either been suspended, sacked, or put on leave as a result of internal investigations.

The SFO can request so called “blockbuster” funding for big cases from the Government beyond its limited £33m budget although Mr Green said he did not know whether he would need it for the Forex probe.

On the issue of extra time for watchdogs, Monique Melis, global head of consulting financial services regulation consultancy Kinetic Partners said: “This extra time will be welcomed by the FCA and PRA given that it can often take a long time to determine whether there are reasonable grounds to launch an investigation”

But she said there was a “common feeling” amongst industry professionals that, should the FCA or PRA commence an investigation, the process should be as quick as feasibly possible.”