Britain’s bankers to be put into the spotlight with new Violation Tracker. But will it change behaviour?

JP Morgan Chase has just been ordered by the US Commodity Futures Trading Commission to pay another $920 million fine after admitting misconduct tied to market manipulation known as “spoofing” while trading precious metals and Treasury securities. 

In the biggest penalty of its kind ever imposed by the CFTC, JP Morgan is to pay a $436.4 million fine, $311.7 million in restitution, and $172 million in disgorgement.

Yet JP Morgan is no stranger to shelling out huge fines as the cost of doing business. According to the US Violation Tracker, the US bank has paid an astonishing $34 billion to regulators in penalties over the last two decades.

That’s nearly a tenth of the staggering $325 billion shelled out by financial companies across the US over the same period for misdemeanours ranging from market abuse to price-fixing. Even worse than JP Morgan, though, is Bank of America which has paid $82 billion in fines for various settlements, the bulk of which related to mortgage abuses.

It’s no surprise the financial industry has been penalised so heavily for behaving badly over the last few decades. What is shocking is how much worse the banks are than any other industry. They have paid out around seven times the amount fines as the next offender, the oil and gas industry, which has been fined $45 billion over the period while pharmaceutical companies have been billed for $41 billion. Go figure.

The figures come courtesy of Violation Tracker, the first database of its kind created by the Corporate Research Project of Good Jobs. Based in Washington DC, Good Jobs First is a US national policy resource centre aimed at promoting corporate and government accountability.

Since VT was started by Good Jobs First twenty years ago, it’s experts have covered 438,000 civil and criminal cases from more than 250 agencies which have paid total penalties of a mind-boggling $633 billion. (It’s free to use at www.goodjobsfirst.org/violation-tracker.)

VT’s research director,  Philip Mattera, told Reaction that there are some small signs that the biggest offenders, especially the major banks, are at least being made uncomfortable by its compilations which show how much companies have been fined and for what. 

Indeed, the Violation Tracker is proving such a handy tool in turning public attention on the worst corporate offenders that a group of British financial experts and campaigners are working on creating a UK version.  

The project is the brain-child of Andy Agathangelou, founder  of the non-for-profit Transparency Task Force, and he hopes to have a British VT running within six months. 

He reckons the project, which is being run at the moment by volunteers, will cost £100,000 and he is looking at crowdfunding as well as donations for funding. 

Agathangelou says: “Wherever you are on the political spectrum – capitalist or socialist – we need properly functioning and transparent markets. It’s particularly important for those supporting free markets as they need to ensure that capitalism is doing what it is designed to do, and not to be distorted by the bad behaviour of big corporations.”

A pensions expert, Agathangelou, hopes that establishing a tracker for the UK will help shine a spotlight on poor corporate behaviour, particularly that of the banks. “For the most part, the industry behaves well and is essential for the well being of the country and consumers. But the industry has been let down by the poor behaviour of a few people and organisations which has tarnished reputation for the industry as a whole. It’s important that trust is restored.”

Agathangelou, who recently joined the new All Party Parliamentary Group on Pension Scams, is working with his US partners on building the database for UK companies and potentially to track corporates in the rest of the world. There is no precise figure for total penalties paid by the UK’s financial industry but a recent audit by the Mail on Sunday estimated that £71 billion has been paid out for misconduct either through fines or compensation in the decade since the crash. 

This covers multi-billion pound fines for the banks’ roles in mis-selling PPI and derivatives, failing to stop money laundering as well as their role in rigging Libor interest rates.

By far the biggest offender is Lloyds Bank which has paid out around £23.4 billion in write-offs and fines relating to the  payment protection insurance scandal. RBS is second with settlements of around £20 billion while Barclays has paid at least £17 billion in fines and compensating customers. 

These are staggering amounts, and there are probably more to come in compensation from some of the scandals still unravelling. But will a UK tracker shining a more powerful light onto the banks make a jot of difference to their behaviour, or that of any other corporate?   

You only have to look at the latest JP Morgan scandal to see that behaviour has not changed much since the crash: in fact, JP’s traders conducted these spoofing trades between 2009 and 2016, well after the crash started to unfold. Why would banks such as JP Morgan want to change their spots? A $1 billion here or there is immaterial to a bank worth $293 billion: the bank’s share price barely fluttered on the news. Counter-intuitively, investors took the fine as good news that JP Morgan had finally settled its latest clash with the regulators.

As VT’s Mattera says, the discomfort brought about by the spotlight or heavy fines has yet led to significant changes in behaviour. “For the most part, they continue to regard penalties as a tolerable cost of continuing to engage in business as usual.  Our hope is that the information we provide in Violation Tracker will increase the public pressure on corporations to obey the law.”

Yet some industry experts are more optimistic. They believe that the culture is changing because of the heavier fines, the senior manager’s regime which means bankers are now personally liable if caught out as well as much tougher surveillance through data analytics. 

One of them is the ex-Merrill Lynch trader turned Sherlock Holmes-cum-gamekeeper, David Hesketh, who runs TradingHub. Based in London, TradingHub is a fintech specialist which provides clients with surveillance tools to alert them to dodgy trading and rogue traders. 

Hesketh says: “We have definitely seen a shift over the last few years. But banks are behemoths and they take time to change their behaviour. But in most cases compliance now dominates trading rooms rather than the other way round.”

Coming from a front-office background has helped in their fight against financial crime, he says, because he and his colleagues know so much about how traders think and work. Hesketh reckons that with banks under such pressure, plus fines getting so large, taking a blind eye to misconduct is no longer an acceptable cost of doing business for the banks. “Boards are being forced to look more closely at the bottom line and that pressure is changing the culture for the better.”

We shall see.