Legacy of Operation Tabernula: UK law enforcers shift away from insider trading and onto FX manipulation

London has a long and prestigious reputation as a hive of financial markets activity, with over 30 years of world-beating trading presence, employing some of the highest-remunerated traders anywhere worldwide.

Even the straitened times which have ensued following the 2008 financial crisis which impoverished many British individuals, businesses and banks did not dent the electronic trading sector, which flourishes in a totally different ecosystem to the entire national economy. Undoubtedly, where there is thirst for profit in adverse times, suspicion from authorities often ensues and in the case of London’s FX sector, the high profile and protracted investigation by government authorities, law enforcement agencies, peers and regulators is testimony to this.

It is clear from recent reports that the British regulatory stance is often to impose a fiscal penalty when irregularities are suspected, which in 97% of cases is duly settled before any action is taken. Simply a case of maintaining a stiff upper lip, quietly paying what is often an arbitrary amount for such large institutions, and moving on.

There was a time when insider trading was one of the gravest offences as far as British financial law was concerned, often resulting in perpetrators being jailed for long periods of time, and treated solely as a criminal matter without any regulatory input. Those days appear to have gone, with the Financial Conduct Authority (FCA) having made no arrests this year at all for insider trading, which is extremely unusual considering the magnitude of the industry in London, and the convictions made by lesser populated regions such as Australia.

This has prompted attorneys and lawmakers to question whether the regulator has diverted its attention away from attempting to stem insider trading in favor of cross-border FX benchmark manipulation, perhaps viewing perpetrators of this practice as the new villains of the peace.

The largest insider trading case in recent times was that of London-based Julian Rifat in 2010. At the time, Mr. Rifat was a senior trader at Moore Capital Management LLC, who was arrested four years ago along with other suspects during Operation Tabernula which was a purge on insider trading in London, which highlighted ten potential offenders. Mr. Rifat was tried in court in January 2014 for allegedly profiting from having access to advantageous information in Barclays and Volkswagen stock.

“The FCA must make sure it is not just going after the glory, stellar, billboard investigations, but keeping pace with the humdrum cases like insider trading, which both affect the day-to-day integrity of our markets, and drives better behavior,” Conservative lawmaker Mark Garnier said in a telephone interview with Bloomberg yesterday.

The amount of manpower within the FCA dedicated to research and detective work relating to the ongoing FX benchmark manipulation probe amounts to 50 people within the FCA’s 427-strong enforcement division. Additonal responsibilities assigned to that particular department include ongoing research relating to several open investigations into attempts to manipulate the London interbank offered rate (LIBOR), over two years since settling its first case against Barclays Plc. It is unknown how many employees within the team of 50 are assigned to the LIBOR investigation as well as the FX probe.

David Kirk, a former FCA chief criminal counsel who is currently employed at McGuireWoods LLP in London further explained to Bloomberg: “A large amount of resource in FCA enforcement is currently dedicated to the FX and LIBOR probes, as these are the issues that they, Parliament and the media consider most important.”

“As a result, it is likely that the bar has been raised on insider trading, with only the most serious and high-profile instances being accepted for criminal investigation” stated Mr. Kirk.

Adding to this supposition further, the FCA has experienced the collapse of several high-profile insider-trading cases recently, opting not to bring charges long after making arrests. Four years after detaining Clive Roberts, the former head of European sales trading at Exane BNP Paribas, the regulator dropped its case in May.

Mr. Garnier urged the regulator at a Treasury Committee hearing in July to do more to investigate whether closing prices of stocks are being manipulated. The 51-year-old lawmaker, who formerly worked in banking and investment management, said the practice is “widely spoken about among equity traders.”

He asked FCA Chief Executive Officer Martin Wheatley about the matter last week. Such behavior has “always been there” and the FCA monitors stock activity closely with computer surveillance systems, Wheatley said at the Sept. 9 hearing.

The annodyne and non-committal response from Mr. Wheatley was that “When the FCA is “uncomfortable with the actions people have taken, we act against them.”

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Legacy of Operation Tabernula: UK law enforcers shift away from insider trading and onto FX manipulation


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