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An Overview of the Senior Managers Regime

The law as it applies to senior personnel working in financial services has been subject to a great deal of attention in previous years. The financial crisis of 2007-2008 raised a number of questions on the rules that the managing powers in banks and other financial institutions are obliged to follow. There has been a great deal of media attention on changes to the law as it applies to businesses and their employees in the financial services industry, with more to come.


In October this year, HM Treasury announced that the Senior Managers Regime (SMR) would be extended to apply to all firms that are authorised to work in financial services under the Financial Services and Markets Act. With the changes due to come into force in 2018, there will be a great deal of interest in the SMR, how it will apply and what the consequences of this development will mean.

Precisely what is the SMR?

The SMR is a regime designed to encourage individuals who have a significant decision-making role in financial services firms to take responsibility for their decisions. Simply put, where individuals take decisions that threaten the commercial viability of an organisation and risk its failure, they will face sanctions as a result.

What is being proposed under the SMR?

The SMR, when it is fully introduced, will take over the ‘Approved Persons Regime’ that currently applies to personnel working in the banking sector. Needless to say, any change to the rules governing activities in financial services, which is vital to the UK economy, will attract a great deal of attention. There are however certain key components of the SMR that warrant particular attention:


When the SMR was originally introduced, it provided for a ‘presumption of responsibility’ on the part of senior managers in financial services. This resulted in a situation where a senior manager or director will be deemed guilty of misconduct where one of their staff members violated their responsibilities as an ‘authorised person’ to work in financial services. However, this has resulted in a great deal of unrest among many in the banking sector, who believed that there was no way to credibly defend against their being presumed guilty of misconduct. In its announcement of the extension of the SMR, HM Treasury also commented that the current situation is unworkable, and have agreed that the in cases of suspected misconduct, senior personnel will be presumed innocent until proven otherwise.

It should be noted however that senior individuals working in financial switches will still owe a statuary duty, in performing their duties, to take reasonable care to avoid violate the responsibilities that they owe to regulators.

Transparency of accountability

Firms that are governed by the FMCA will be obliged, under the new arrangements, to fully disclose the nature of their governance and accountability structures. Historically, there was a concern among many, both within and beyond the financial services industry, that it was difficult to determine precisely who was accountable to whom, and how this could be enforced. Under new arrangements, banks and other financial institutions will need to provide to the FCA a yearly ‘responsibility map’, outlining how the firm is run and who is responsible for its different activities.

Fitness for practice

Regulators have carefully considered the need to ensure that those who are authorised to work in financial services are capable of doing so, and will do so and take the requisite level of care and diligence required. This has resulted in the introduction of a ‘Certification Regime’, which will require firms working in financial services to actively review the ‘fitness for practice’ of their staff. Under these new arrangements, it is hoped that firms will take their role seriously, and ensure that only those who are truly capable of working effectively in financial services, in full compliance with regulatory requirements, do so. It is important to point out that the Certification Regime applies to those aspects of a firm’s business that present a significant risk either to its customers or to its continued viability, e.g. personnel involved in providing investment advice.

Who will be governed by the SMR?

For those working at senior levels in financial services, it is wise to take account of whether or not they will be governed by the SMR. As was mentioned earlier, the regime will apply to ‘senior managers’. In other words, the SMR will apply to individuals who hold a particular position or have a level of responsibility in a key or important area of the business. There will also be some applicability of the SMR to Non-Executive Directors, e.g. individuals who chair certain board committees such as the risk committee or remuneration committee. Furthermore, the SMR will also have some impact on the activities of overseas firms operating in the UK: an individual will be required to be deemed as the ‘Head’ of the UK Branch, and will owe responsibilities under the SMR.

What does this mean for financial services in the UK?

The regulatory landscape facing financial services in the UK is changing. The burden of policing activities within firms is increasingly being placed on businesses themselves, and they alone will be held responsible for failing to observe the rules that apply to them. Furthermore, individuals are under particular pressure to ensure that they do not expose the organisation to unnecessary risk. Taken together, these new changes mean that it will be more important than ever to have the assistance of specialist advisers when dealing with regulators, and other actors in the financial sector.

Lewis Nedas is a leading city law firm, providing comprehensive advice on all aspects of regulatory and financial law in the UK. Our teams are regularly involved in advising individual and corporate clients on the law that applies to them, assisting in their dealings with regulatory bodies and representing their interests in court room litigation.

Contact our Regulatory and Business Solicitors London

If you would like to know more about the work of our team, or to hear more about the impact of the SMR on financial services in the UK, contact our team today via our online contact form or give us a call on 020 3553 7916.

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The First LIBOR Prosecution: What Was the Result?

legal advice londonIn recent years, there have been an increasing number of instances where banks have been implicated in foul play, particularly concerning the manipulation of the London Inter-bank Exchange Rate (LIBOR). Up until now, the vast majority of legal proceedings have been confined to the civil courts, where a bank found to have manipulated the financial markets has been issued with a substantial fine. However, the financial sector has recently bore witness to the first ever criminal prosecution of an individual for manipulation of LIBOR. Last month, Mr Tom Hayes, a former trader at leading financial institutions Citi and UBS, was convicted for 8 counts of conspiracy to defraud.

This case is likely to leave a lasting impression among many who work in the financial sector. At Lewis Nedas, we specialise in providing expert advice in respect of allegations of financial crime. In this blog post, we highlight the background to this prosecution, and give an overview of the final judgment in this case.

What was Tom Hayes being prosecuted for?

This case had its roots in the early days of the financial crisis in 2008, when banks first began to stop lending to one another.

Banks traditionally rely on LIBOR rates to be able to determine the financial health of the sector, which is also taken into account when banks are deciding to lend to one another – and how much these loans will be. It is important to note, however, that LIBOR is essentially a collation of information that banks, or more specifically their staff, provide on a daily basis. In hindsight, this fact exposed a fundamental flaw in the financial system: traders have a vested interest in the rate at which LIBOR is set.

Following collaboration between regulatory agencies in both the US and the UK, a number of individuals, including Mr Hayes, were identified as having been involved in the manipulation of LIBOR across various currencies.

There was a school of thought that prosecution in the case of Mr Hayes, and his colleagues, would prove difficult: the prosecution would have to demonstrate to a jury, beyond reasonable doubt, that Mr Hayes knew that what he was doing was illegal at the time. But at the time when Mr Hayes was alleged to have engaged in market manipulation, the legal position on LIBOR interference was rather unsettled. The defence that Mr Hayes attempted to run was based on this very fact – that manipulation of LIBOR was commonplace in the market at that time and not perceived by those involved to be wrong.

What did the court say about the case?

The prosecution of Mr Hayes was heard before Mr Justice Cooke at Southwark Crown Court, who issued his sentencing remarks on 3 August 2015 (available here). The jury in Mr Hayes’ prosecution found him guilty of eight counts of conspiracy to defraud. Mr Cooke was direct on his description of Mr Hayes’ activities:

“There is no separate standard of dishonesty for any group of society and what you did, with others, was dishonest, as you well appreciated at the time. What you did was blatant with those who shared your approach, but where you knew others would not approve, at Citi for example, you sought to manipulate by more subtle and more surreptitious means, in the same way as you used the brokers with some of their contacts. All this was done to benefit the trading profit of your book or hat of your desk.”

The court reiterated the fact that Mr Hayes had admitted that he had worked with others at various other banks to influence the submissions that they made in respect of LIBOR, each of whom he rewarded. Mr Justice Cooke was particularly unimpressed with Mr Hayes’ conduct:

“The seriousness of this offence in the context of the LIBOR benchmark and banking is hard to overstate. High standards of probity are to be expected of those who operate in the banking system, whether they are bankers involved in dealing with deposits and the lending of money or traders in an investment context. What this case has shown is the absence of that integrity which ought to characterise banking.”

The court also had little sympathy for Mr Hayes, or his defence that the manipulation in the markets was commonplace:

“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.”

The court heard evidence that there was some internal manipulation at UBS prior to Mr Hayes’ arrival, but not of the kind that Mr Hayes engendered in relation to the Yen LIBOR. Furthermore, it was pointed out that it was Mr Hayes that developed the practice of Yen LIBOR manipulation amongst the traders, and attempted to do the same at Citibank – notwithstanding the fact that at Citi the court pointed out that the ethos was quite different.

Despite the fact that Mr Hayes was noted to have received various warnings from many in the financial world regarding what he was doing, the court heard evidence that he pursued in his determination for personal gain. Mr Justice Cooke commented:

“The conduct involved here must be marked out as dishonest and wrong and a message sent to the world of baking accordingly. The reputation of LIBOR is important to the City as a financial centre and of the banking industry in this country. Probity and honesty are essential, as is trust which is based upon it. The LIBOR activities, in which you played a part, put all that in jeopardy.”

In his sentencing remarks, Mr Justice Cooke sentenced Mr Hayes to what amounted to 14 years imprisonment for his activities. Mr Hayes will be required to serve half of the sentence in custody before being released on license.

The case of Mr Hayes will send an important message to the financial sector, and provide evidence of the approach taken by the courts and regulatory authorities in respect of instances of alleged financial market manipulation. Lewis Nedas are specialist city lawyers that are regularly sought to provide expert advice in respect of allegations of financial crime. If you need advice on how the law applies to you, contact our team now.

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Is the Bribery Act 2010 to be Watered Down?

briberyIt was recently reported in the Independent that the UK Government is considering making amendments to the Bribery Act 2010. This comes after several business leaders have criticised the Act, claiming that it is hindering their ability to export goods out of the UK.

This news has not been welcomed by anti-bribery activists, who claim that any watering down of the 2010 Act would undermine the UK’s credibility. On the other hand, government sources report that their prime motivation for considering making changes to the Bribery Act is to preserve the UK's position as a competitive environment for businesses.

At Lewis Nedas, we are routinely called upon to provide accessible, comprehensive legal advice to clients that are concerned that they may be vulnerable to charges under the Bribery Act. In this blog post, we review the terms of the 2010 Act and point out how it applies to everyday activities in the commercial world.

What exactly is bribery?

The Bribery Act 2010 is the governing piece of legislation for the crime of bribery in the UK. Bribery as a crime is often poorly understood. Essentially, as the Act makes clear, it relates to the providing of an advantage or some kind of benefit that will entice or encourage someone not to do what they are otherwise expected to do.

It is important to understand that the 2010 Act makes the crime of bribery multifaceted, and therefore easier to commit. Bribery not only extends to the provision of some kind of benefit, but also the taking of said benefit. If you take any kind of reward – monetary or otherwise – in exchange for doing something that you would otherwise not have done, you will, by definition, be vulnerable to a charge of bribery. Furthermore, positive cases of taking action in exchange for a benefit are not the only possible instance for bribery to occur. If you take a gift or benefit, and decide not to do something which in normal circumstances you would have done, you may still be vulnerable to a charge for bribery.

How much does the legislation cover?

The reach of the 2010 Act is not to be underestimated. It applies to organisations and individuals, meaning that the employees of a business owe a duty not to engage in any kind of activity that could be perceived as bribery. It is because the Bribery Act is so wide reaching that it is seen to be causing some difficulties for businesses and individuals working in the international commercial world.

The approach taken to bribery is different, depending on the part of the world that you are operating in. Some counties have legislation that is as sophisticated as the UKs, while others have laws that are not as prescriptive in terms of what will or will not be deemed to be bribery. This raises a particularly important point for international organisations that have a base in the UK: if your business is implicated in bribery anywhere else in the world, even though your actions or inaction is not deemed illegal in that particular country, your presence in the UK is likely to make you vulnerable to a charge of bribery in the UK.

What steps need to be taken in order to guard against bribery?

Organisations that have a commercial base in the UK are obliged to implement a series of policies and procedures that are designed to safeguard against potential instances of bribery. It is in a business’s interests to make their anti-bribery framework as comprehensive as possible, detailing how matters are to be handled in a variety of circumstances including:

  1. What stance the organisation takes in respect of accepting gifts or forms of hospitality;
  2. The steps that staff are encouraged to take in order to reduce the likelihood of their becoming embroiled in suspected instances of bribery; and,
  3. What procedures should be followed when setting up commercial relationships with other organisations in different parts of the world.

How is bribery regulated in the UK?

The responsibility for policing bribery in the UK lies with the Serious Fraud Office (SFO). This body tends to work as part of a framework involving a host of regulatory agencies, including the police, in order to enforce the UK’s anti-bribery legislation.

It should be pointed out that prosecution for bribery is a challenge for regulatory bodies. They must be able to amass a considerable amount of evidence that will be able to demonstrate a direct link between some kind of action or inaction and a corresponding gift.

However, it is also important to understand that while the evidential burden is high, a successful prosecution under the anti-bribery legislation can result in a significant penalty: organisations that are implicated can be issued with an unlimited fine, and individuals may find themselves facing a prison sentence of up to 10 years.

The UK’s legal regime governing bribery is complicated. Not only is the law difficult to understand, the situations that can be deemed to demonstrate some kind of illegal activity are too numerous to account for. If you are concerned that you or your business is vulnerable to a charge for bribery, or have already been approached on that very point, it is vital that your case is handled by lawyers that understand the gravity of the situation.

How can Lewis Nedas help?

Lewis Nedas are a leading city firm with an enviable reputation for providing effective legal advice to complicated situations. Our team have experience of some of the most complicated cases concerning bribery and financial crime, allowing us to give our clients access to tenacious and highly knowledgable legal advisors. We have been actively involved in this field for many years, and take pride in offering our clients a comprehensive service: we will represent your interested in all discussions with regulatory bodies that are required; provide legal advice that is specific to your circumstances and interests; and, if the need should arise, protect your interests in any litigation. Contact our team now to find out how we can help you.

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Are Deferred Prosecution Agreements a Positive Step Forward?

dpaIn July 2015, the news that Sarclad, a Rotherham-based private technology company, may be the first to sign a Deferred Prosecution Agreement (DPA) with the Serious Fraud Office (SFO) sparked a series of questions over the future of justice in corporate cases.

Sarclad was one of a number of companies the SFO invited to attend DPA negotiations after an investigation was launched into irregularities in its business conduct across a number of jurisdictions. The case is one of the first to include allegations of bribery prohibited in the UK under the Bribery Act 2010. If this DPA goes ahead, it will open the door for a new influx of similar agreements, but there is a question mark over whether this would be a positive step forward.

What Are Deferred Prosecution Agreements?

DPAs are commonly used in the US and came into force in the UK on 24th February 2014, after being introduced by Schedule 17 to the Crime and Courts Act 2013. They are used in cases where organisations, as opposed to individuals, are charged with economic crimes such as bribery and fraud.

DPAs have been described as a form of ‘plea agreement’ whereby a company charged with a criminal offence can admit wrongdoing and have proceedings against them automatically suspended in return for agreeing to certain conditions. These conditions may include: paying a fine; providing compensation; adhering to enhanced compliance procedures; or, co-operating with the authorities in the future prosecution of individuals suspected of wrongdoing.

Although the negotiations involved are confidential, the DPAs must be approved by a judge at a public hearing. If the company subsequently fails to honour the conditions of the DPA, prosecution against them may resume.

Arguments For and Against DPAs

First, DPAs are used in cases where it is not in the public interest to mount a criminal prosecution. This would therefore free up the courts to serve the community by focusing on more serious cases. However, the opposing view to this argument is that corporate cases should be subject to court proceedings. It is argued that such serious cases, which often involve high sums of money, with potentially vast consequences for stakeholders, are unsuited to DPAs, which are similar to the deals given to low-level offenders such as shoplifters.

Secondly, DPA’s prevent the collapse of big companies that can result from criminal conviction. A conviction may have a disastrous impact on the company’s reputation, ability to secure future work and win public contracts. On the other hand, DPAs are seen as a ‘get out of jail free card’, allowing companies to evade justice by paying their way out.

A counter-argument is that it is not the company itself that goes to jail; rather, it is the individuals within that are responsible for the misconduct. Considering that these individuals may only form a miniscule part of an expansive company, a conviction sounding the death knell for the company creates massive job losses, inevitably including those with no involvement in the crime. It would therefore be more productive to the economy generally to allow the company to continue functioning whilst it implements reforms to prevent any future criminal activity.

Thirdly, following on from the last point, DPAs are seen as a method of allowing companies to avoid the embarrassment and publicity connected with court proceedings. However, this appears to be more of a long-term than short-term vision, as many are eagerly anticipating how the imposition of the first batch of DPAs will go and the process is expected to be under intense scrutiny. Indeed, this media glare was what the SFO reportedly hoped to avoid by selectively choosing relatively small and unknown companies as the first round of participants in DPAs. The body is said to have hoped that any problems encountered in the process could be straightened out in privacy; however, there seems little chance of that.

Fourthly, DPAs are aimed at deterring criminal conduct but questions have been raised over whether they will be effective. There is concern they will have quite the opposite affect, possibly making the doing of “dirty business” easier. They may even encourage recidivism amongst directors who feel safe in the knowledge they can avoid jail.

Two cases in point are USB and Barclays, who manipulated currency rates whilst they were already operating under a DPA in the US for manipulating interest rates. One of the main issues leading critics to believe DPAs lack teeth is the fact they operate based on little more than a company’s promise to reform in the absence of any external presence to oversee and ensure compliance.

However, the counter-argument to this point is that outsiders may not be best placed to police large complex companies and internal compliance measures provide a more sensible form of regulation. This is especially true where the misconduct was committed by only a limited number of employees.

Going Forward

The SFO expects to sign its first deals by the end of the year, although some believe it could be as soon as the next few months. Until that time, a number of parties, including company boards and the expert financial crime lawyers at Lewis Nedas, will be eagerly awaiting the details.

Perhaps most importantly, the suitability of DPAs in relation to the extent of companies’ culpability, co-operation, recidivism or any related investigations, remains to be seen. However, only upon the first DPA’s conclusion can the full facts be examined, shedding light on whether or not DPAs represent a positive development in the area of corporate criminal liability.

Contact Lewis Nedas

At Lewis Nedas we have a long and successful history of advising clients concerned with investigation by the SFO and other regulatory bodies. Our dedicated team of Financial Crime lawyers are very familiar with this area of the law, and regularly advise and represent clients in their dealings with regulatory agencies. If you require advice, please contact us on 0207 387 2032 or complete our online enquiry form.

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Additional Financial Penalties for Defendants Affecting the Veracity of the Judicial System – by Sean Reilly

court finesIt has been long established that if you plead guilty in the criminal courts you could (and probably would) face some form of financial penalty, depending on the nature of the offence and your circumstances. Until October 2012, if acquitted you were able to recoup your costs from the State if you had paid for your representation privately. Since January 2014, you are no longer entitled to recover all your costs and, in most cases, only recoup less than a third. However, since 13 April 2015, if you appear in court facing a criminal charge, unless acquitted, you will face having to pay the Criminal Charge.

The previous Lord Chancellor, Chris Grayling, brought in the Criminal Charge on the back of the ‘criminals need to pay their way’ policy. In essence, even if a court decides that no other punishment should be handed down, the defendant will have to pay a victim surcharge (starting at £15) and a minimum of £150 for the Criminal Charge.

I recently advised a defendant who was summonsed to court for theft of milk powder from a shop. She had not left the shop and my advice was that not all the elements of the Theft Act had been made out and she therefore had a strong defence. However, I also had to advise that, should be plead not guilty and was found to be guilty, the minimum Criminal Charge payment could be £1,000. My client, on benefits, told me she wanted to plead guilty as she could just about pay £165 over a year but would never be able to pay the £1,000.

The Criminal Charge applies to all offences and breaches committed after 13 April 2015, and is fixed by the type of offence and the plea. A guilty plea in the Magistrates’ Court to a summary only offence attracts £150, while a trial in the Magistrates’ Court for a more serious matter will raise a charge of £1,000. Higher rates apply in the Crown Court.

These financial penalties can be quashed after two years but, in the meantime, the bailiffs will have had their say.

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