Personal accountability will be strong focus in 2016
Bank management could come under the microscope
Enforcement actions against senior managers in banks could pick up in 2016, shifting the focus to individual accountability, as regulators continue to investigate allegations of misconduct in the financial industry, says Jack Drohan, president of ACI America and partner at law firm Drohan Lee.
Banks have already agreed to pay out billions to regulators to settle various matters of misconduct at their firms, but the watchdogs have yet to punish management for failing to adequately protect against and oversee rogue traders.
“I think you are going to see an increasing number of enforcement actions brought originally on the basis of [an] individual trader’s conduct in the FX space, and also in the Libor space and the interest rate derivatives space,” says Drohan. “The trend is going to be walking up that ladder or chain of command, and looking more at supervisory responsibility and accountability at the banks.”
“You are going to see an increasing number of enforcement actions brought originally on the basis of [an] individual trader’s conduct in the FX space”
An Incentive
Drohan sees an incentive on the part of the government to effectively administer the Dodd-Frank Act, as mandated by Congress, in light of years of public perception that the law is slow to be implemented.
“So, I think regulators in the US are wanting to play catch-up to a certain extent,” he says. “They are wanting to show these regulations are impactful. When regulations become effective and implemented there is usually a fairly aggressive attempt on the part of both examiners and enforcement divisions to make sure the banks take those regulations very seriously.”
Meanwhile, US authorities have signaled that fighting corporate fraud and other misconduct remains their top priority. In September, the Department of Justice’s Office of the Deputy Attorney General said to staff in an internal memo: “One of the most effective ways to combat corporate misconduct is by seeking accountability from individuals who perpetrated the wrongdoing.”
More Skilled
Should regulators and other authorities become more active in 2016, as expected, banks’ liabilities could increase as well as their reputation risk. Moreover, the results of these actions could provide further ammunition for lawyers engaging these firms in civil litigation. In the US, civil lawyers have already secured settlements of more than $2 billion from some of the accused banks in the ongoing FX manipulation lawsuits.
“I don’t think these civil suits are nearly half over,” Drohan says. “I think these types of bank practices that you are seeing [will] extend across assets.”
“I think enforcement and civil plaintiffs’ counsel are getting much more skilled,” he adds. “The early cases, four or five years ago, were basically inventing the wheel in trying to understand what discovery methods were important, and whether to go after electronic chats or not, or how to prove collaboration or intent. Now they are getting much more skilled at it. I think it is going to be harder and harder for banks to hide wrongful behavior.”