The FSA has begun legal action on another insider trading case, this time relating to share tips taken from the ‘printing rooms’ of JPMorgan, Cazenove and RBS. Plenty more such cases are thought to be coming: the Sunday Times claims the FSA’s enforcers are ready to pull the trigger on four years of insider trading investigations which they’ve nailed down.
If you’ve engaged in anything resembling insider trading, this should be enough to strike you with apprehension. But what if you’ve just been dismissed from your previous role for performance reasons? That should strike you with apprehension too.
In the current market, recruiters and regulatory lawyers say banks are unwilling to hire anyone who comes with any amount of regulatory risk, almost no matter how small.
“Now that banks are under increased scrutiny from the FSA, they don’t want to take any risk with their employees,” says Harvey Knight, a partner at Withers Worldwide and formerly the FSA’s lead authorisations and approval lawyer.“If you are a junior, they are not going to go out on a limb for you at all. If you are senior, they will sometimes take a bit more risk – but not always.”
Headhunters agree."There are so few opportunities out there now that if anyone has even a sniff of an FSA issue, banks don't want to know," says one fixed income consultant. "It's just too complicated to get authorisation and as a headhunter you wouldn't put these candidates forward as it's creating a lot of extra work for line managers."
Do not be dismissed for performance issues
The problem arises when it comes to the forms that must be completed when you move from bank to bank in a controlled function. These include form C, which must be completed by your previous employer explaining why you’ve left, and form A which is usually completed by the new employer trying to hire you.
If form C is ‘qualified’ – if you’ve been dismissed for any reason which could lead to questions about your fitness and propriety – Knight warns there will be problems. The same applies to form A, which includes a long section about previous employment and questions about disciplinary actions, criticism and censure.
“As soon as you tick a box on form A that says you need to provide further information, you will be into the non-routine channel,” Knight says. “There’s now a much longer delay from the FSA for processing non-routine applications than there used to be and banks are far less willing to hire people without clean forms.”
For this reason, it is advisable to avoid anything which looks like a dismissal for poor performance and to attempt to negotiate voluntary redundancy instead. “A dismissal can become a fitness and propriety issue,” says Knight. “Someone may simply have been dismissed because they weren’t meeting commercial targets, which doesn’t mean they’re incapable of doing their job, but this will need to be clarified by the FSA and will mean you don’t have a clean form A.”
Pity the alleged LIBOR-fixers
As we noted a few weeks’ ago, the FSA’s ferocity is proving particularly disastrous for all the people dismissed in London in relation to the LIBOR-fixing investigation. Headhunters say a lot of London traders have been dismissed or suspended pending investigation by the FSA (some having had all deferred stock removed) and are unable to work.
“People have been dismissed for things they did three years’ ago – even though it was perfectly normal at the time,” says one headhunter.
As Bloomberg pointed out last week, when interbank markets froze in 2007 it became common practice for staff responsible for LIBOR submissions to discuss where to set the rate with traders. Traders who’ve been let go feel therefore feel they’re being accused of collusion unfairly.
Nevertheless, banks are keen to wash their hands of anyone implicated in LIBOR fixing and the chances of anyone even tangentially involved getting reemployed appear to be zero. As the Financial Times pointed out last month, the compensation relating to LIBOR-fixing could be $1 trillion or more. This being so, banks are trying to steer as clear of this as they possibly can.
The one recourse
If you have issues with the FSA, there may, however, be a method of redeeming yourself.
If the FSA indicates it’s intending to refuse an application, Knight says the applicant bank is invited to withdraw the application to prevent the regulator issuing a warning notice. At this point, he says banks always withdraw in order to avoid appearing antagonistic.
However, the candidate in question can refuse consent for the application to be withdrawn and (with the help of an (expensive) lawyer) continue to contest the FSA’s prospective decision without the support of the bank that was going to hire them.
”In these circumstances the individual candidate is trying to persuade the FSA that "but for" the withdrawal of the application by the bank, the individual candidate would be considered fit and proper by the FSA and thereby clear his name,” says Knight.
”I have done this recently with one individual candidate,” he says. Although this candidate was unable to get a job with the bank that had originally wanted to hire him (it had implemented a hiring freeze), Knight says he’s now FSA approved and has happily
found a new regulated role elsewhere.