Bankers quake after UK watchdog raps top dealmaker

A crackdown on market abuse by Britain's financial watchdog that this week claimed a big name banker has sent a shudder through the City of London, where even top executives are worried the smallest slip-up could land them in trouble. From senior managers to those in more junior ranks, bankers are now wary that every casual aside in an email or mobile phone exchange could face scrutiny by the Financial Services Authority.
This was brought home this week after the FSA fined J.P. Morgan banker Ian Hannam, one of London's most prominent dealmakers, 450,000 pounds ($718,700) for passing on inside information in emails. The FSA's more intrusive stance, alongside a tightening of UK take-over guidelines last year, is having an effect. Merger and acquisition specialists, bond bankers, and advisers on stock market listings say they are far more cautious than they ever were before.
"My risk director was emailing me to make sure that I understand the rules after (the Hannam case), it has made everybody in the market sit up and take notice," said one banker at a rival firm. The FSA had wanted to bag a big name as a deterrent, so that awareness of protocol should, more than ever, be part of a top banker's job.
"Because of his seniority, he (Hannam) should not have done that," said Philip Rubens, a litigation partner at law firm FSI, referring to a general tendency to be "liberal and laid back" with the content of emails. "The FSA may not have taken action if Hannam was someone more junior. But someone has to carry the buck... People have to very careful. They have to be thinking constantly 'is this price-sensitive information, confidential information?'"
Some bankers defended Hannam, saying the evidence against him was thin and that the FSA recognised he did not act "deliberately" or "recklessly." The FSA began its crackdown after the 2008 financial crisis, and also after criticism that the regulator was soft compared to its US counterpart, the Securities and Exchange Commission. Even now, some believe the punishments meted out by the FSA, which is being scrapped next year and split into two, are not as severe as they might be in the United States.
Hannam, who is appealing the regulator's decision, has not been barred from working in financial services, while Nicholas Kyprios, a Credit Suisse high yield bond specialist fined in March for disclosing inside information to a potential investor without following the right guidelines, kept his job. But there is also plenty to show that the regulator is stepping up the pressure.
Spot checks are becoming a more regular occurrence, bankers say. One said the FSA would, for instance, demand data on a bank's commodities trading risks, giving them a two-day deadline. Another said they often had to provide all documentation relating to a big deal, including email trails. The FSA has also been shadowing executive committee meetings at investment banks. This constant presence is weighing on bankers' minds, while an increase in raids is adding to the drama.
The regulator has been co-operating more closely with the City of London police, Rubens said, and using search warrants more regularly to take away hard drives and mobile phone records. The biggest source of paranoia for bankers is around whether they could have inadvertently helped someone "cross the wall", or passed on commercially sensitive information that could be used to trade on unfairly.
Disclosure rules have been around for a long time, so in theory, bankers should not have to change radically the way they behave. "If you think it will be a hindrance then you are admitting you weren't sticking to the rules before," one senior equities banker said. "What you can say is carefully scripted." Some do believe, though, that the crackdown will affect not only day-to-day relations between colleagues at firms and their clients, but also the way they handle deals.