Soft-touch regulation is over, warns Tracey McDermott, and firms pushing things to the limit should expect no sympathy.
Tracey McDermott is talking tough. As the new head of enforcement and financial crime at the Financial Services Authority (FSA), the 42-year-old is making clear that when taking on the biggest names in the City there will be no tolerance for those who play fast and loose with the rules.
After imposing a record-breaking fine on Barclays for attempting to manipulate the benchmark Libor interest rate, McDermott made her debut before the Commons Treasury select committee last month, where her colleague Andrew Bailey, the FSA’s top banking regulator, lamented that the bank had a “culture of gaming – and gaming us”.
In an interview with the Guardian, McDermott says similar behaviour will not be tolerated in the future. She had been “acting” as the head of the division for more than a year until last week when she was appointed to the role full time. While not exactly adopting a “one strike and you’re out policy”, McDermott suggests that firms will no longer get two or three chances to put things right.
“If firms try to push things to the limit all the time, they should expect no sympathy when they fall over the edge,” she said.
After the Libor fine on Barclays, McDermott told a City audience: “We need to have a low tolerance for firms that consistently bump along the bottom.” This, she explained, was a problem that did not necessarily burst out into the open very often. “We look at a firm and say ‘you need to fix this’ and they fix that problem and a new problem arises,” she said. Firms now risk being referred to her enforcement division more quickly than in the past.
A middle child who went to a Catholic comprehensive school in Rotherham, South Yorkshire, she has had two children during the past 10 years she has been at the regulator. “My younger daughter has the older one wrapped around her little finger,” she said.
She is expected to behave more like the younger child when tackling the City, if Simon Morris of the law firm CMS Cameron McKenna is right. “I feel sorry for the malefactors of this world … Any firm currently cutting corners will soon have good cause to regret its sloppiness,” Morris said on learning that her appointment had been made permanent.
A self-confessed “happy hacker”, McDermott now owns a horse of her own after being sent on her first riding lessons at the age of nine.
A lawyer by profession, McDermott’s training helped her prepare for her appearance before MPs in their hasty investigation into the Barclays Libor scandal, which heaped criticism on the FSA for the way it handled the interest rate-rigging saga. “One advantage of being an enforcement lawyer and in litigation generally is you are trained to disagree with things. What I say is that I do love a debate, love a good row, a legal argument,” she said.
She is now reluctant to discuss Libor any further after telling MPs there are another seven financial firms, not all banks, under investigation. Nor she is keen to discuss the specifics of the accusations levelled against Standard Chartered by a US regulator about moving $250bn (£160bn) of funds for Iranian clients in breach of sanctions.
McDermott says that new powers being handed to the regulator, which would allow the charge sheet against firms under investigation to be published, cannot be compared with the tactics used by the New York department of financial services, which gave Standard Chartered no prior warning it was going to publish allegations that the British bank had breached sanctions against Iran. If the powers – which have been criticised by the former deputy chairman of the Conservative party, Howard Flight, and others – are passed by parliament, firms would not be surprised in the same way, she argued.
The investigation into Bank of Scotland – a division of HBOS that has been found guilty of “very serious misconduct” – is also continuing but she cannot talk about that either. And, on the popular question about why more bankers have not gone to jail during the five-year financial crisis, she said: “They go to jail when they break the criminal law. It is very precise, in order to deprive them of their liability.”
So much of what went wrong had been about poor judgments by bankers, she said. “I’m not sure we should want to say it should be easy to go to jail. We are committed to sending people to jail where we can. Insider dealing is the highest-profile example of that.” Ten criminal convictions have been secured in the last 18 months and prison sentences handed out.
McDermott moved quickly up the FSA ranks after six years with the law firm Dechert, where she was on the brink of becoming a partner. When the regulator is disbanded by the coalition next year in an attempt to beef up City regulation, her division will sit within the Financial Conduct Authority. Part of the role, as she sees it, is about restoring trust.
“Financial services is an incredibly important industry,” she said. The Libor scandal closely followed the payment protection mis-selling saga – where the compensation bill for the big banks alone is topping £8bn – and interest rate swap mis-selling to small businesses.
“It is clearly something that matters in the public eye. This is not to say everything in the industry is bad. The overall picture is not something which makes people want to go out to their financial advisers. Firms need to be operating for the best interests of their clients and not for their own personal gain,” she said.
Firms and individuals come under the scrutiny of her enforcement division when they are suspected of breaking the rules. Is this a sign that regulation has failed to prevent bad behaviour in the first place?
McDermott notes that the FSA had overhauled its approach after the 2008 crisis. Even so, she said: “There has to be recognition that regulators will not stop every problem. This isn’t just about the regulator. It’s about the culture. If the only reason people’s houses weren’t being burgled is because of the police we’d all get burgled a lot more.”
Source: Guardian UK