British regulators led a global investigation after whistleblowers raised concerns about misconduct in the forex market, resulting in six of the world's largest banks being fined a total of $4.3 billion.
The UK set its fines at record levels, reflecting rising political and public demands that bankers, cast since the financial crisis of 2007 to 2009 as villains who reaped rewards as the world economy crumbled, are held accountable for misconduct.
But questions have been asked about how the UK's Financial Conduct Authority (FCA) ran the inquiry and what level of penalty, if any, can change the culture in financial markets.
Britain's Treasury Select Committee (TSC), a cross-party group of lawmakers, will decide next week whether to schedule hearings on the forex scandal, political sources said.
Some regulators and bankers admit they view much of their work through the prism of how they would justify decisions to TSC Chairman Andrew Tyrie, a steely lawmaker whose often sardonic quizzings are broadcast on television.
"Whatever we do we measure against how it will look sitting in front of the Treasury Select Committee," one senior banker, who asked not to be named, recently told Reuters.
The TSC could use next Wednesday's hearing into a Bank of England-led "Fair and Effective Markets" review, aimed at raising standards of conduct in wholesale financial markets, as a precursor to further hearings on the forex market.
Minouche Shafik, deputy governor of the Bank of England (BoE), is due to give evidence in the first session. Her evidence will be closely watched after the BoE on Wednesday fired its chief foreign exchange dealer after an inquiry criticised his handling of suspicious market practices.
Tyrie has already voiced outrage at the latest scandal, saying some banks appeared too big to manage and suggesting traders in a position to harm their employer, clients or markets should have their remuneration deferred for long periods and, if caught behaving badly, should risk having their licences to practice withdrawn.
HEADS SHOULD ROLL
Other TSC members have called for fines to be paid from bonus pools, rather than profits, and for heads to roll.
"If I was the banking minister, I would want to know who is going to be resigning," said John Mann, a TSC member. "Heads should roll at the very top."
Two of the six banks fined were British, HSBC (>> HSBC Holdings plc) and Royal Bank of Scotland (>> Royal Bank of Scotland Group plc). RBS has said it is reviewing the conduct of over 50 current and former staff, and dozens of supervisors, and had started a disciplinary process against six people. Barclays (>> Barclays PLC) is still in talks with authorities over a settlement.
Two of the main criticisms levelled at the FCA during its forex investigation focus on concerns that increasingly punitive fines have done little to change bank behaviour and that the regulator effectively privatised much of its inquiry.
Regulators argue that slapping penalties on companies and securing deferred prosecution agreements, or non-prosecution agreements, help change the culture of an organisation and, in an ideal world, prevent future crimes.
But large penalties can harm investors and employees, lengthy investigations demand experience and resources and some critics question why companies should be punished for crimes committed by unprosecuted individuals.
The 13-month FCA investigation involved over 70 enforcement staff and unprecedented cooperation with other regulators.
But it also relied on banks trawling through chatrooms and emails and interviewing staff - and passing evidence back in a strategy that some say allowed the industry to police itself.
Some lawyers argue this allowed the FCA to avoid using its powers to compel individuals to come for interview and gather evidence inadmissible in parallel U.S. proceedings. Under the Fifth Amendment of the U.S. Constitution, people have a right not to answer questions that might lead to self-incrimination.
"This is just getting information through the back door," said one lawyer familiar with the investigation. "You could say it's outrageous, as it's essentially the UK subverting its own investigation process, privileges and protections for the U.S."
(Additional reporting by Jamie McGeever; Writing by Kirstin Ridley; Editing by David Holmes)
By Kirstin Ridley and Matt Scuffham