The pall of misconduct in Fixed Income Currency and Commodity markets The shadow of the worst financial crisis in living memory has been significantly lengthened by a series of appalling cases of misconduct in Fixed Income, Currency, Commodity and other markets. Details of these began to emerge relatively late in the crisis, but they have proved surprisingly prevalent and persistent. And they have further eroded the trust of the general public in financial markets. Public outrage is based on the view that the rewards in finance are disproportionate and that the system is rigged. When people read of malpractice in financial markets, of trading profits being claimed through manipulation, collusion or dishonesty, they naturally wonder if they are one of the people who have been wronged. In fixed income, employees in firms around the world attempted to manipulate Libor, Euribor and other similar measures of short-term borrowing costs in order to benefit themselves or some other part of their firm’s business. In the United States and elsewhere, firms structured the mortgages or other assets used to back securitised assets, or misrepresented the nature of those underlying assets, in ways inconsistent with the interests of end investors. Regulators identified systematic attempts to mis-value and otherwise engage in market misconduct in relation to large scale positions in credit default swaps. In commodities markets, traders were found trying to manipulate physical or derivative prices, including those of gold, oil, lead, platinum, palladium and coffee.
These are like salt rubbed into the wounds to public confidence in financial markets. This is in no one's interest. Many leaders in the financial industry and the majority of those who work in these markets are ashamed of this bad behaviour and want to find a way to put it comprehensively behind them. The fines alone have been sufficiently large to require substantial reshaping of firms’ businesses. I am confident we can find a way forward. I recall the story of when the Queen visited the LSE in November 2008 and asked the gathered assembly of eminent economists why had nobody noticed that a crisis was on its way? The reply came in the form of a letter from the British Academy7. Their bottom line was that the crisis was caused by “a failure of the collective imagination of many bright people, both in this country and internationally to understand the risks to the system as a whole.” This is a moment when we need collective imagination – to imagine financial markets that are fair and effective and work in the interests of all of us.