Libor interest rate riggers 'should face prosecution'

 

Martin Wheatley: System built on "flawed incentives, incompetence and the pursuit of narrow interests"

A report into the Libor rate-rigging scandal says the system is broken and suggests its complete overhaul, including criminal prosecutions for those who try to manipulate it.

Its author, regulator Martin Wheatley, told the BBC that bankers guilty of fixing Libor in future could be jailed.

"Society has lost confidence in banks... and we need to restore that."

Libor is used as a benchmark for millions of transactions and determines some loan and mortgage rates.

Mr Wheatley, managing director of the Financial Services Authority, said that society wanted people who committed these sorts of acts to "pay the price, and if that includes jail for the most extreme fraud in the system, then that's what should happen".

Libor - the London Inter-bank Offered Rate - is calculated from banks' estimates of how much it costs them to borrow from other banks, and is then used as a reference rate to determine the interest charged on loans to companies and individuals.

Fined

His report also said the banking association that supervises Libor, the British Bankers' Association (BBA), had "no further role" in the setting of Libor.

His main recommendations include:

  • Introducing a new regulatory structure for Libor, including criminal sanctions for those who attempt to manipulate it
  • Inviting other groups to apply to take over the BBA's role, which will include drawing up a code of conduct and carrying out regular audits
  • Encouraging banks not part of the current group of 20 rate-setters to submit rates to Libor to make it more representative
  • Basing Libor calculations on actual rates being used, rather than estimates currently provided by banks
  • Cutting the number of Libor daily fixings from 150 to just 20 and reducing the number of currencies looked at to better reflect the most-used rates

The review suggested the Financial Services Act, which is currently passing through parliament, be amended to allow the FSA to investigate and prosecute future Libor manipulation.

Regulation of the UK's financial system is itself being overhauled. Responsibility for overseeing financial firms, including overseeing any new Libor-setting body, will be shifted to the FSA's replacement, the Financial Conduct Authority, which Mr Wheatley will lead.

The Financial Secretary to the Treasury, Greg Clark, strongly welcomed the report, which he said was a "credible blueprint for the future", adding that the government supported the "broad thrust" of the recommendations which would be debated when parliament resumes.

Start Quote

There is no longer any nook or cranny in the City of London where self-regulation can be trusted to work”

End Quote

He added that the banking industry should not wait for changes to be imposed, but should "begin immediately to put its house in order".

Labour's shadow treasury minister, Chris Leslie, said: "Reforming Libor so that it is based on real 'and independently verifiable' trade data is the least that should be done.

"But surely the wider lesson is that a whole array of benchmark indices, across commodity markets and other traded products, are too easily prone to manipulation."

In the longer term, Mr Wheatley said that UK authorities should work with other international bodies to examine whether Libor should remain the market benchmark.

The governor of the Bank of England, Mervyn King, said the proposals should be introduced swiftly.

But he also said more work needed to be done to find a safe method of pricing market transactions that are currently linked to the 130 Libor rates that Mr Wheatley wants scrapped.

"Over the medium to long term, further thinking will be needed to meet the challenge of benchmarks based on thinly-traded markets, especially when they are quote-based."

'Careless'

A group of large banks submit daily estimates of the rates they are paying to borrow money. On the basis of the submissions, financial firm Thomson Reuters calculates the Libor rate on behalf of the BBA, and it is released to the financial markets.

Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

Libor sets a benchmark for more than $300 trillion (£185tn) worth of loans and transactions. Mr Wheatley said it was "the most important figure in finance".

In June, Barclays was fined £290m because its traders tried to rig Libor.

Following the scandal, and revelations that other banks were implicated, Chancellor George Osborne asked Mr Wheatley to review Libor.

"The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust - it has torn the very fabric that our financial system is built on," Mr Wheatley said.

In a stinging criticism of the BBA, Mr Wheatley said it was "careless" in its approach to policing Libor and put too much trust in a system that "did not have the right level of checks and balances in place".

Libor could impact traders' bonuses, he said, so they had an interest in pushing the rate up or down. "They were allowed to do this freely with no oversight," Mr Wheatley said.

At the height of the financial crisis when bank finances were weak, there was an incentive to submit a low Libor figure. A high figure might call into question a bank's creditworthiness.

The BBA said the review was an "essential step" towards reforming Libor and signalled it would accept Mr Wheatley's recommendation that oversight be handed to another body.

The BBA said it would work closely with the government and regulatory bodies towards this.

Mr Wheatley said that Libor rigging had been across the board: "We are not talking about a few rogue individuals here, but a systemic problem. In the case of Barclays, for example, there was a web of traders that worked together to try and manipulate Libor to benefit one another."

Barclays is the only bank to have been fined so far, but it is understood at least 15 banks globally are being investigated for possible Libor manipulation.

 

More on This Story

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +2

    Comment number 844.

    843.echo50

    Rough Justice

    Perhaps if those top set example faced justice the "Plebs" at the bottom might abide by the law

    You simply cant have society where the balance of justice is so rigged to those with wealth buy their way freedom

    How about son heir to "Red Bull" buying way to freedom

    This is not a society we all aspire.

    Not matter what your background do wrong face justice

  • rate this
    +1

    Comment number 843.

    Its quick and easy to put someone in prison:


    Alex Haigh was jailed for 12 weeks by Westminster Magistrates' Court for squatting in a flat in Pimlico, London.

    Janet Haigh, from Plymouth, said she was in tears after her eldest son called her out of the blue from Wormwood Scrubs prison.

    The government said squatters had been "playing the justice system".

    Now what about those who fixed libor ?

  • rate this
    +1

    Comment number 842.

    Libor is defined as:

    Libor

    The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time.

    As per my point early today potential collusion when counterparty desks sit opposite you don't get true price discovery

  • rate this
    0

    Comment number 841.

    825. listening_to_the_argument
    47 MINUTES AGO
    Hands up if you understand what LIBOR actually means.
    -------------
    Fair Point - I thought it was called LIMOR.

  • rate this
    +1

    Comment number 840.

    @830 noic98

    It's never too late. It just takes the directed will of the people. And I don't mean action; I mean inaction. This government and its masters are so arrogant that they will press and press until the people are left with only one option. By then the police will have been privatised too so they won't be a reliable source of oppression. Have patience. It will all come to a head.

  • rate this
    +1

    Comment number 839.

    Yet more corruption and still no prosecutions. So Bankers can commit crime and get away with it scot free as Tories fear Bankers retribution if criminalised.

  • rate this
    0

    Comment number 838.

    Part of the problem in dealing effectively with excesses within financial services is the complexity of the products and services. There is a vocabulary which comprises recognisably English words but, when combined into sentences, few of us understand. The lack of regulation fosters this ignorance. We need stronger regulation and sufficient well-paid and trained regulators to police it.

  • rate this
    0

    Comment number 837.

    All I want to say is : so what if Libor has been rigged.

    You all know as well as I do, not only will nothing change (thanks to the government) but this is not the only criminal act committed by the bankers.

    We still need a FULL investigation, without one it's just "scape goating".

  • rate this
    0

    Comment number 836.

    This government and the regulator clearly have no intention of implementing any significant change at all. It's all cosmetic; a nicer name for the regulator that has 'conduct' implied but not enforced. Contrite sounding words from the banks and agreeable gestures from politicians.

    They have no intention of reforming the financial sector.

  • rate this
    +2

    Comment number 835.

    All the people at the top are just greedy for money and sod everyone else. they are corrupt.

  • rate this
    0

    Comment number 834.

    Is "living off immoral earnings" still a criminal offence?

    Just a thought for the Crown Prosecution Service.....!

  • rate this
    +2

    Comment number 833.

    823. Name Number 6
    44 MINUTES AGO
    I wonder if this applies?

    http://en.wikipedia.org/wiki/Obtaining_pecuniary_advantage_by_deception
    --
    It covered many sins, perhaps that's why it was repealed and replaced with much harder to prove offences.

  • rate this
    0

    Comment number 832.

    #830
    Think you've put it very well Nioc.

    Not sure "we all stood by" at the time it was happening - we've certainly been doing so since though and the govt refusal to take action becomes more absurd with each passing week.

  • rate this
    0

    Comment number 831.

    826.Swing Lowe

    The quality of people at the top does not say much for all the Top Univertsities who produce such people

    I really question the value of places like Harvard when the number of people at the top have graduated from these institutions.

    There must be a subject "how to lie cheat and swindle and get away with it !

  • rate this
    +1

    Comment number 830.

    It is, as joseramirez said, all our own fault. We stood by as the financial institutions grew more powerful than sovereign governments. We watched as "Britain" and "British" became empty concepts. "We" has become "I", and now, as we get to experience what it is to live in a jungle, we are crying. It's too late. Sadly, the solution is worse than the problem in the short term.

  • rate this
    0

    Comment number 829.

    822.Mooker
    26 Minutes ago

    totally agree. there should be a European spring to oust the corrupt in this country.

  • rate this
    -1

    Comment number 828.

    This is about the people at the top of the banks like Bob Diamond not the ordinary bank staff who suffer the indignities of the idiots at the top. The problem is that most banks in the UK are not run by qualified bankers but by chartered accountants who haven't got a clue (Fred Goodwin was a chartered accountant for instance). Counting money doesn't give you expertise in other fields!

  • rate this
    -1

    Comment number 827.

  • rate this
    +3

    Comment number 826.

    The people who share the information the Libor crooks have should also be hung out to dry, the recruitment consultants who keep supplying people of low moral standing to positions of untold financial influence, lawyers who they refer with to find out how close they are sailing to the wind, should pay us compensation

    Get rid of all them and get some new blood and new systems in place to protect us

  • rate this
    -2

    Comment number 825.

    Hands up if you understand what LIBOR actually means.

 

Page 1 of 43

 

More Business stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.