Beyond the Jury Box: How the Hayes and Palombo Decision Potentially Reshapes Market Manipulation Law

The UK Supreme Court’s July 2025 decision in R v Hayes and R v Palombo¹ has significant implications for financial regulation, quashing convictions that once symbolized the post-2008 crackdown on market manipulation. The decision comes more than a decade after the London interbank offered rate (LIBOR) scandal first emerged, during which time regulators worldwide imposed fines exceeding US$10 billion on major banks and brokers for benchmark manipulation, including criminal convictions of 19 traders in Britain and the United States. While the immediate impact of the Hayes decision centers on jury misdirection, its implications extend far beyond criminal trials to reshape how regulators, civil courts, and other tribunals approach market manipulation cases across all forums.

No Presumption of Automatic Dishonesty

At its core, the Supreme Court rejected the notion that whether a benchmark submission is “genuine or honest” can be determined by legal construction of regulatory definitions. As Lord Leggatt emphasized:

Whether a submission was genuine or honest did not turn on how a court construes the LIBOR and EURIBOR definitions. It turned on the state of mind of the submitter and whether the stated opinion of the borrowing rate was one which that person actually held. That is a question of fact which, in a criminal trial, is the province of the jury and not the judge. (para 7)

In doing so, the Court ruled that prosecutors cannot shortcut the dishonesty analysis by treating commercial considerations as automatically establishing criminal intent. The Court made clear that dishonesty cannot be presumed from conduct alone, regardless of how inappropriate that conduct might appear from a regulatory perspective. As Lord Leggatt emphasized:

The judge was wrong to direct the jury that taking account of commercial considerations was inconsistent with honesty as a matter of law. This misdirection was fundamental to the prosecution case. (para 161)

Implications for Regulatory Enforcement

Financial regulators like the Securities and Futures Commission (SFC) and international counterparts routinely bring enforcement actions without juries. The massive fines imposed during the LIBOR scandal were largely based on establishing clear legal standards for market conduct, then determining whether behavior fell short of those standards.

The Hayes decision, however, makes clear that commercial motivations do not automatically constitute dishonesty without proper analysis of the defendant’s subjective state of mind. This distinction may have profound implications beyond benchmark manipulation, potentially affecting how dishonesty is proved in all market manipulation cases involving subjective assessments or opinions. Regulators may no longer presume that any commercial motive automatically invalidates conduct, at least where questions of individual culpability arise. The Court’s recognition of market reality is telling:

The identification of this rate required a qualitative assessment of various data sources and was a matter of subjective opinion rather than empirical fact. (para 7)

This suggests higher evidential requirements for cases involving individual accountability. Rather than inferring misconduct from the mere fact that commercial interests influenced decisions, regulators may need to demonstrate through documentary evidence, witness testimony, or admissions that the person knew they were not providing their genuine assessment. The Court noted that while commercial influence might support an inference of falsity:

The jury might well have regarded the fact that a submission was influenced by trading advantage as supporting an inference that the figure submitted was not in truth a rate at which, in the submitter's opinion, the bank, or a prime bank, could borrow money at the relevant time. But it was for the jury to decide whether to draw that inference, and not for the judge to tell them they must do so because the law required it. (para 8)

This approach — requiring inference rather than presumption — may influence how regulators structure enforcement cases, particularly those involving individual penalties or prosecutions with more severe sanctions reserved for cases involving clear knowledge of falsity.

Other Implications: Civil Litigation

The decision also has the potential to impact civil litigation. In particular, class action lawsuits against banks for benchmark manipulation have typically relied on establishing that submissions breached legal definitions, from which damages could be calculated. Courts have generally accepted that any commercial influence rendered submissions improper. The Supreme Court’s reasoning undermines this foundation. The Court explicitly rejected the “cheapest rate” theory adopted by the Court of Appeal, explaining:

If that was the submitter’s state of mind, no logic points to submitting a rate of 2.50%. To adopt a practice of submitting the lowest figure would amount to saying: ‘Although the rate my bank would have had to pay might have been anywhere within a range, I am going to assume that it would have been at the very bottom end of the range and therefore the cheapest rate that it could possibly have been.’ A banker who adopted such a Panglossian attitude would be unlikely to have a successful career in finance. (para 72)

This reasoning could affect future civil litigation strategies. The Court’s recognition of legitimate ranges is crucial:

Once the hypothetical nature of the exercise is appreciated, it is apparent that submitting the cheapest rate in the range is not, as the Court of Appeal supposed, a rational (let alone the only rational) choice. It would be an expression of irrational optimism. (para 72)

Civil claimants may now need to engage in more sophisticated analysis of whether specific submissions represented genuine opinions rather than simply applying mechanical tests about commercial influence.

Refining the Regulatory Response

The scale of the LIBOR enforcement response — over US$10 billion in fines across institutions including Deutsche Bank, Barclays, UBS, RBS, Citigroup, JPMorgan Chase, and numerous brokerages — was unprecedented in financial regulation. These penalties were imposed based on various legal theories, some of which focused on institutional failures and market manipulation at an organizational level. 

The Supreme Court’s analysis addresses criminal prosecution standards specifically, and it is crucial to understand that regulatory enforcement operates under different frameworks. While the Court acknowledges that manipulation can and did occur, it distinguishes between legitimate commercial judgment within acceptable ranges and criminal dishonesty:

It was thus in the nature of the exercise that there would on any given day be a range — which might be narrower or wider depending on market conditions — of different rates that could reasonably be selected: the figure submitted depended on the subjective judgment of the submitter. (para 22)

This recognition may inform how regulators structure future cases, potentially leading to clearer distinctions between institutional accountability for systematic market abuse and individual criminal liability for knowing falsification. 

What Next?

The Supreme Court’s decision represents a significant refinement of criminal prosecution standards rather than a wholesale rejection of market manipulation enforcement. Coming after more than US$10 billion in regulatory fines worldwide, the decision creates a more nuanced legal landscape where criminal prosecution standards have been clarified as requiring careful factual analysis of subjective intent.

Importantly, the Court was addressing criminal law standards specifically, not making broader judgments about the validity of regulatory enforcement actions. As Lord Leggatt concluded:

In each case there was ample evidence on which a jury, properly directed, could have found the appellant guilty of conspiracy to defraud. But the jury was not properly directed. (para 9)

The Court emphasized that the convictions failed not because manipulation couldn’t be proved but because the legal test applied was flawed:

The judge was wrong to direct the jury that taking account of commercial considerations was inconsistent with honesty as a matter of law. This misdirection was fundamental to the prosecution case. (para 161)

However, the Court’s final assessment captures the uncertainty this creates:

It is not possible to say that, if the jury had been properly directed, they would have been bound to return verdicts of guilty. The convictions are therefore unsafe and cannot stand. (para 162)

This creates a framework where regulatory standards for institutional accountability may continue to operate effectively, while criminal prosecution standards have been refined to require more rigorous proof of individual dishonesty. The decision may prompt global regulators to reassess their enforcement theories for individual cases without necessarily invalidating the broader enforcement response to the LIBOR scandal.

For a financial system still grappling with the appropriate balance between market freedom and regulatory oversight, the Hayes decision arguably provides a roadmap toward more sophisticated and defensible standards specifically for criminal market manipulation prosecutions — standards that better distinguish between what can be proved to a criminal standard of subjective dishonesty versus what justifies regulatory intervention to protect market integrity. This evolution promises more principled enforcement that may ultimately prove more effective in deterring genuine manipulation while preserving space for legitimate commercial judgment within appropriate bounds.*

*Sara George represented Mr. Hayes in the regulatory proceedings brought by the FCA in his referral to the Upper Tribunal.

¹ Following the Supreme Court's decision, the Financial Conduct Authority (FCA) revoked Palombo's ban and withdrew its Decision Notice against Hayes, ending the proceedings in the Upper Tribunal which had been stayed.