Following a multi-billion dollar settlement over forex market manipulation, Bank of England deputy governor Nemat Shafik hinted that some individuals could end up facing jail time for their role in the fraud. The UK’s Financial Conduct Authority has passed cases on to the Serious Fraud Office, which has the authority to bring criminal charges.

“In some of the research that’s been done on deterrents, criminal sanctions are top of the list in terms of dissuading people from doing certain things,” said Shafik, reports Jill Treanor at The Guardian. “Making them pay is further down the list in terms of impact.”

Nemat Shafik Criminal Sanctions

Criminal sanctions: Fining banks and letting bankers go free creates moral hazard

One common criticism of the US government’s handling of the US financial crisis is that most of the individuals behind the risky, and sometimes dishonest, behavior that led to the crisis were never prosecuted. Even though banks have had to pay billions in fines to various government agencies, those fines ultimately fall on shareholders.

Shafik also said that she expects banks involved in the settlement to rescind bonuses for everyone who benefited from the fraudulent trades, not just for those in senior positions who were directly involved in the price fixing, but that doesn’t solve the moral hazard either. If a banker believes that the upside of participating in fraud is a large bonus, and the downside is simply losing that bonus and cost shareholders some of their money, then the potential for abuse is still high. It seem obvious that forcing people to weigh their bonuses against jail time (even if it’s only those in fairly senior positions) should be a better deterrent, but it is surprising (and kind of refreshing) to hear a central banker bring it up.

Criminal sanctions: Switzerland also investigating individuals for their role in banking fraud

Shafik isn’t the only person to bring up the prospect of jailing bankers for fraud. The Swiss Financial Market Supervisory Authority (FINMA) is investigating 11 people for fraud, and criminal charges seem pretty likely. As others have pointed out, putting people in jail for fraud is a no-brainer in practically every other industry. While putting prudential concerns first arguably made sense in the middle of the financial crisis, now that the danger of has passed there’s no reason individuals shouldn’t be held accountable.