The new regulatory regime for banks and brokers will force senior managers prove they are taking steps to prevent fraud. At least, that’s the theory
But the troubling aspect of the case is not the length of the sentence. It’s this: Hayes could only have rigged Libor for so long if his bosses either failed to supervise him properly or preferred to ignore his tactics. Why weren’t they also in the dock?
The judge argued, fairly, that inadequate supervision should not deflect from the seriousness of Hayes’s actions: “The fact that others were doing the same as you is no excuse, nor is the fact that your immediate managers saw the benefit of what you were doing and condoned it and embraced it, if not encouraged it.” Yet a cultural cleanup of the banking and financial system will look like a depressing hunt for scapegoats if accountability extends only to the (admittedly well-paid) troops on the trading floor.
This problem will not be eradicated easily, since the supervisors’ plea of “I didn’t know” is hard to counter. The regulatory answer is meant to be the new Senior Managers Regime, designed to ensure individual accountability by requiring that specific tasks and responsibilities are attached to named individuals. The regime, covering banks, brokers, investment firms and insurers, is intended to mean ignorance can no longer be an excuse. Senior individuals must show they were awake and took reasonable steps to prevent misbehaviour.