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  • Writer's pictureWilliam Webster

A fine tax

Do massive fines perpetuate the problem? Terry Smith recently explained to the FT why he didn’t invest in banks. High leverage and complexity made them too risky. This week we have had (yet another) investigation. This time it’s FX. Incidentally, a market that banks wanted ring fenced from tighter regulation. Bluntly it’s fraud on a massive scale committed by some of the world’s biggest players. These firms are not only too big to fail but too big to manage and too big to regulate. $4.3bn of fines may be the regulators answer but it’s clearly not going to stop this happening again. Whistleblowing and discounts for early settlements may help but it’s hardly the sort of stuff that uncovers all. Perhaps some tried and tested deterrents should be considered like:

  1. Pursuit: Criminal prosecution and if found guilty jail;

  2. Prohibition: Banning senior management;

  3. Restitution: Confiscation of all remuneration;

  4. Restriction: Removal of the License. These cause pain at an individual level and are therefore effective. But maybe this isn’t what we want. I suppose the escalation of fines is one way of recouping taxpayer’s support. It’s a sort of tax on complexity that guarantees the largest firms will continue to pay. Another reason why investing in banks seems a risk too great for comfort.

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