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ICAP ruling: fines vs settlements
Wednesday, August 21, 2019, by Lorien Pilling, comments 0

In early July 2019 the European Court of Justice (ECJ) ruled in favour of ICAP Management Services Ltd, the world’s largest interdealer broker, in an interesting court case that may have a bearing on the way the UK Gambling Commission imposes settlements on failures to comply with regulations.

According to Reuters, ICAP had been accused of rigging the Japanese Yen Libor financial benchmark along with several banks and of forming a cartel.

ICAP denied wrongdoing. The banks admitted taking part in return for lower fines amounting to EUR 1.5 billion.  ICAP subsequently challenged the EU decision at the General Court which found in its favour. The Commission appealed to the ECJ. The judges dismissed the action.

Writing in the Sunday Times, Michael Spencer, the founder of ICAP said “billions in fines were imposed by regulators, and US crime agencies against the banks over several years”.

These record-breaking numbers now seem to have been plucked out of thin air. In fact, they weren’t fines at all. They were nearly all “settlements” imposed by powerful government agencies. Financial regulators were able to land a guilty verdict against a target, without the messy business of actually having to prove it.

More surprising was that out of the eight banks and brokers targeted by the EU, ICAP was the only one prepared to put up a fight. The others all paid up without murmur, despite the flimsiness of the case. 

Spencer stated, “We (ICAP) challenged the decision because we knew we had not engaged in any cartel behaviour and the whole investigation was designed to deflect attention from the failings of regulators to spot the financial crisis coming.”

There are of course similarities between this case and the settlements achieved by the Gambling Commission. GBGC estimates that the gambling industry has paid GBP 42m in fines and settlements to date.

Spencer argues, “The regulator is judge, jury, prosecutor and chief witness — you’re often guilty simply because they say you are. To ensure Britain is successful after Brexit, the government should put an end to this rough justice”.

It took a great deal of courage on the part of Michael Spencer and the present management of ICAP to continue to clear their name after an exhausting six years.

For a settlement to take place each party must agree the terms and by doing so they severely limit the opportunity to appeal. 

Directors of companies are faced with a dilemma: agree a settlement and take a discount on what is to be paid compared to a fine.  Or take the fine with the opportunity to appeal later and be judged independently in the courts. 

Companies that are listed are most likely to take the settlement. It is difficult to explain to shareholders why you did not take the discount. But people like Michael Spencer from ICAP, who built the business from scratch are the people most likely to take the fine and appeal.  To them it is both personal and it is often also their money!

Written by Warwick Bartlett