The U.K. Serious Fraud Office (SFO) has opened a criminal probe into the attempted rigging of interest rates that led to a record fine of $451 million against Barclays. Soon after the chairman, chief executive officer Robert Diamond and chief operating office Jerry Del Missier also put in their papers.
U.K.’s SFO joins the U.S. Department of Justice in criminally investigating the collusion among derivatives traders and rate submitters to rig interbank offered rates. U.K.’s Financial Services Authority (FSA) is also seeking civil penalties against banks. Barclays has admitted to rigging the London interbank offered rate, or Libor, as well as Euribor, its equivalent in euros, as early as 2005. In testimony to Parliament last week, Diamond apologised and said 14 Barclays traders were involved.
The Chairman of U.K.’s FSA has said that its probes will result in more settlements “before the end of the year”. So, some of the 18 banks that are surveyed as a process for determining the Libor rates could face further regulatory heat.
Such has been impact of the regulatory action that, if reports are to be believed, Barclays is already considering spinning off its retail banking and investment businesses.
A few weeks ago, cement companies in India faced similar pressure from the Competition Commission of India. 11 cement companies were charged with cartelisation and anti-competitive behaviour.
The competition regulator fined them, collectively, more than Rs 6,000 crore (nearly $1.2 billion).
The fine was 50 per cent of the net profit of the last two financial years ending March 2011. Cement companies now fear that the strong regulatory action could take away some of their pricing power in the near term.
This has been the biggest ever fine imposed by the Competition Commission ever in the country.
But despite the stinging order, there has hardly been any alarm bells for the companies, or even others in the industry. Neither has there been any sense of remorse from the industry or its leaders. No heads have rolled at the guilty companies, either.
The Competition Commission has taken a long time to investigate the matter and come out with its findings. Worse, the news was leaked two to three days before the formal orders were announced.
The difference between the regulators of the two countries could not have been more telling. Regulatory action needs to have a sting, a surprise element, along with the rigour of sound investigation. With the first clearly missing, and if some were to be believed, the second a little suspect, the impact has not been felt.
Clearly, as India moves towards a free market economy, the government will have to sharpen the teeth of its regulators so that if a line is crossed, there is swift and decisive action. The fine should also be so harsh enough to be a disincentive for others companies considering crossing the line.
As India opens the doors to increased competition, ensuring the interests of consumers and industry alike will be critical. How many banks are willing to listen to the RBI to stop charging pre-payment penalty for home loans? Or how many telecom companies has the TRAI fined and taken action against to stop pesky SMSes?
Ask around and see how many families have complaints against their realty companies. Sadly, India still does not have a real estate regulator, despite every town worth its name now having a few homegrown realty companies.
Work hard. Compete hard. Be sure to make money. But never ever break the law – that should be the message from regulators.
Unfortunately, the regulators often threaten with the proverbial bark but seldom follow it up with their bite.