Getting fired is the only punishment that will make the City’s bad boys and girls sit up and take notice

For too long, it seems to me, punishment in the City of London has not fitted the crime. The general response of UK regulators has been to impose fines – this on super-wealthy institutions or individuals that can pay up without so much as blinking. These measures have had next to no effect. Bad behaviour has continued. Indeed, if the revelations concerning the Libor and forex rigging scandals are anything to go by, it’s got worse.

I’ve often wondered if the authorities sit in their towers (I was going to say ivory, there I’ve said it anyway) and scratch their heads at the lack of progress. Every time a scandal breaks it weakens our claim that the UK is a clean environment in which to do business, that the City is a place where trust is paramount.

Yet they carry on slapping on financial penalties and the misdeeds keep coming. Something similar occurs in football, where the only sentence that truly hurts a manager or player earning a large seven-figure sum is preventing them from sitting on the touchline or playing on the pitch. Hitting them with a fine achieves absolutely nothing. As with the City, in football managers and players are fined, and there is no discernible improvement in their actions.

At last, however, some people are waking up as to what works and what patently does not. Lloyds Bank has sacked eight individuals for their part in the Libor fixing scandal and is clawing back their bonuses.

Royal Bank of Scotland and Barclays have done the same. The former dismissed six employees and the latter five, and both clawed back substantial sums in bonuses. Barclays chief Bob Diamond also resigned. Perhaps it finally took something as appalling as manipulating an interest rate that affects the lives of ordinary people to bring employers to their senses.

Possibly, as well, it was what was uncovered in the ensuing investigations that made bank chiefs sit up and take notice. For what was clear from the email chains between the traders involved was a deep, underlying culture of arrogance and contempt for pretty much everyone except themselves.

There are the boss classes busy spending millions in trying to present caring, compassionate, wholesome images of their corporations, and, several levels below, there are the traders not caring two hoots for the company name or its supposed values. Lloyds’ very public move raises the bar: eight on one day is a dramatic statement of intent. The only regrets are that the eight cannot be named because they still face possible Financial Conduct Authority (FCA) proceedings; and Lloyds has been unable to take action against those who had previously left the bank, thought to number 12.

But effectively slapping a health warning on eight individuals, making it difficult for them to ever work in finance again, is a significant step. There’s always been a feeling in the City wine bars and on the dealing floors that once you’re in, you’re there for life – or until you’ve made so much you can retire early.

That sense of entitlement has been broken. It still takes an age for the process to complete – Lloyds’ involvement in fixing Libor first came to light in July 2012, and the actual rigging itself dates back to 2006. As for the FCA, it does not seem to do anything in a hurry: Lloyds acted before the watchdog, another reason for applause.

It’s to be hoped that others take notice. Six banks – Barclays, Citi, HSBC, JP Morgan, RBS and UBS – are in talks with the FCA to reach a settlement over alleged rigging of the forex market. A total fine of £1.5bn, which includes a 30 per cent discount for co-operation, is thought to be under discussion.

The very idea of the banks getting round the table with the watchdog tells you everything that is wrong with the system. They should be told the size of their fine – not make it the subject of negotiation. Reluctantly, I’m forced to accept they would use their lawyers to obstruct the FCA and drag out the whole affair even further – at least this way a fine is imposed.

But if the fines are accompanied by wholesale sackings, that at least should provide pause for thought.

In New York, the financial regulator wants Commerzbank to fire some of its employees as part of a settlement to resolve investigations into its dealings with Iran and other countries under US sanctions.

Germany’s second-biggest lender was reportedly close to agreeing to pay $650m over sanctions violations, with almost half going to the regulator, New York’s Department of Financial Services. The bank is also being investigated by the Manhattan US attorney for alleged lax money laundering controls.

However, officials are now said to be considering a single settlement to resolve the sanctions probe and the money laundering investigation. Commerzbank, which is 17 per cent owned by the German government, would join more than half a dozen foreign banks that have already settled with US authorities for similar wrongdoing.

But in Commerzbank’s case, the department is said to want to require the bank to fire a handful of employees who engaged in misconduct. No board members are thought to be affected.

Benjamin Lawsky, superintendent of the department, maintains it is necessary to do more than penalise institutions for wrongdoing. “If you’re not holding individuals accountable, you’re not going to get the full effects of deterrence,” the regulator said.

In addition to pressing for employees engaged in misconduct to lose their jobs, Lawsky has said he might seek other sanctions, such as clawing back bonuses (as a regulator, he does not have the power to bring criminal charges).

This would not be the first time the US watchdogs have made such a move. As part of the $8.9bn agreement struck in June this year between the US and BNP Paribas over sanctions violations, 13 people were fired or separated from the French bank at the regulator’s behest, and another 32 were disciplined.

London should follow New York’s lead. Because getting fired is the only punishment the City’s bad boys and girls understand.