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14 April 2016

On 14 April 2016, the FCA published a Decision Notice in relation to Arif Hussein. Whilst the facts of the Decision Notice can be briefly stated and are largely unexceptional, Hussein's arguments in defence, his subsequent criticism of the FCA's investigation and his forthcoming appeal of this matter to the Upper Tribunal all make the matter of some interest.   

Hussein was a derivatives trader at UBS.   The FCA found that between 28 January and 19 March 2009, Hussein had on a number of occasions informed GBP trader-submitters what his preference was for GBP LIBOR rates.  It went on to find that his stated preferences were based on his own positions and that he was aware that LIBOR was a benchmark that was supposed to be based upon cost of borrowing in the inter-bank market (rather than his own positions).  As a result, the FCA determined that Mr Hussein lacked integrity in that he acted recklessly by closing his mind to the possibility that the submitters would use his stated preferences when making the submissions.  On that basis, the FCA has sought to impose a ban upon Hussein. 

A copy of the Decision Notice can be found here.

Hussein has referred the matter to the Upper Tribunal.

Comment

Two points raised by Hussein in his defence are worth particular attention.

  • Hussein argued that his communications with the trader-submitters were for the purpose of "same day hedging". He adduced evidence from a market expert on this subject, who confirmed both the existence of the practice and that Mr Hussein's communications were consistent with attempts to hedge internally (rather than to manipulate the LIBOR submissions).  The FCA accepted the existence of the practice, but said that if this was Mr Hussein's real purpose, then he closed his mind to the possibility that his communications were being misconstrued by the trader-submitters as instructions to fix LIBOR.  Whilst it is not clear from the Decision Notice, the relative success of this argument may explain why the FCA found that Mr Hussein had acted recklessly rather than acting knowingly.

 

  • He also claimed that FCA Enforcement had denied him access to documents improperly.  Under s394 of FSMA, the FCA is obliged to disclose documents on which it relies and also documents which, in its opinion, undermine the decision it has taken. Hussein claimed first that it was not enough for the FCA to say that documents were generally supportive of its case (although not disclosed as not relied upon) in circumstances where he was likely to take a contrary view.  The RDC rejected this, saying that it was the opinion of the FCA that mattered in terms of whether or not documents undermined its decision. He also argued that the FCA had failed to take steps to obtain certain documents from UBS that would assist his case.  He argued that disclosure of documents was key to ensuring the fairness of the process and drew a parallel with the Code of Practice issued under the Criminal Procedure and Investigations Act 1996 which compels the Crown in criminal cases to pursue all reasonable lines of enquiry in relation to material possibly held by third parties.  Plainly the FCA is not bound by the Code of Practice.  However, the RDC did say that FCA Enforcement "should seek relevant documentation from third parties where to do so would be proportionate and responsive to the issues in the case".   The FCA had already obtained large volumes of material from UBS and was not satisfied that there was a case for further documentation.

    Speaking in the media after the Decision Notice, Mr Hussein has spoken further about his arguments on document disclosure.  He has accused the FCA of scapegoating him as a result of a "cosy deal" with UBS.  In particular, he identified a refusal on the part of the FCA to ask UBS to hand over a spreadsheet of LIBOR exposures that Mr Hussein said was updated daily by traders and was widely available on the bank's intranet.  Mr Hussein says that this demonstrates that UBS has a systematic policy of manipulating LIBOR.  Neither the FCA nor UBS have commented in response. 

    The FCA's position in relation to s.394 FSMA is clearly correct even if it is unsatisfactory for subjects of investigations that it is left to the FCA to determine whether material "might undermine" its case such that it requires to be disclosed.  The FCA's statement as to how it will exercise its information gathering powers against third parties is more interesting and may be capable of use by practitioners in the future (subject to change or refinement by the Upper Tribunal). It will be interesting to see whether there is further guidance on this important matter offered by the Upper Tribunal.