Jail term for “The Machiavelli of LIBOR”: What next for senior managers?

Tom Hayes, the former City trader dubbed the “Rain Man Ringmaster” of LIBOR rigging, has been jailed for 14 years for conspiring to rig rates. His is the first conviction of its kind by a British jury and has sent shockwaves through the financial sector.

Hayes, who had been a star trader at UBS and Citigroup, was found guilty on all eight charges of conspiracy to defraud. The jury heard that Hayes promised to pay one broker $100,000 to keep the LIBOR rate as low as possible. Another trader was told that the offer of a Mars bar would be enough to fix the rate. 

While there is little doubt that Hayes’ actions have cost him far more than a Mars bar, discussion turns to the likely fallout from the verdict. Handing down his judgment, Mr Justice Cooke told the court that the sentence was intended to send a message “to the world of banking”. There is nothing new about this sort of rhetoric but it does show the direction of travel. We have entered an age of individual accountability in banking.

From March 2016, senior managers in banks and building societies will potentially be liable for the new criminal offence of reckless misconduct in the management of a bank if a decision they take causes the failure of the institution for which they work. The offence, which can carry a prison term of up to 7 years as well as an unlimited fine, is part of a package of reforms designed to increase the accountability of senior managers in the financial sector.

At the heart of the reforms is the new senior manager regime (SMR), which will apply to individuals performing a “senior management function” in banks, building societies, credit unions and PRA-designated firms. The SMR is designed to make it easier for the regulator to hold named senior individuals within firms to account for failures in their areas of responsibility. The new regime places the burden of proof on senior managers, who will need to show that they took reasonable steps to prevent, stop or remedy regulatory breaches that took place under their watch. The FCA will be able to take direct action against individuals at a firm, including senior managers, who could be ordered to pay hefty fines.

From early next year, each application for a senior manager to be approved by the regulator will need to be accompanied by a statement of responsibility (SOR) setting out those aspects of the bank’s affairs that the individual will be responsible for managing. SORs will be an important tool in defining a senior manager’s potential liability and will need to be drafted and maintained with great care. Individuals should resist treating the forms as a “box ticking” exercise or they could find themselves in hot water in the event of a regulatory breach or managerial failing. 

With the trials of six former Barclays traders charged with rate rigging set to take place next year, early indicators are that Hayes’ conviction may be the first of many. In the meantime, senior managers are advised to watch this space.