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Libor interest rate riggers 'should face prosecution

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

Libor scandal
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Explaining the Libor scandal Timeline: Libor-fixing scandal Barclays scandal: Key players How British banking broke down

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.

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. Greg Clark. the Financial Conduct Authority. including criminal sanctions for those who attempt to manipulate it Inviting other groups to apply to take over the BBA's role.Fined His report also said the banking association that supervises Libor. Continue reading the main story There is no longer any nook or cranny in the City of London where self-regulation can be trusted to work. will be shifted to the FSA's replacement. had "no further role" in the setting of Libor. which Mr Wheatley will lead. be amended to allow the FSA to investigate and prosecute future Libor manipulation. Regulation of the UK's financial system is itself being overhauled. which is currently passing through parliament. which he said was a "credible blueprint for the future". 'Careless' . strongly welcomed the report. Responsibility for overseeing financial firms. including overseeing any new Libor-setting body. adding that the government supported the "broad thrust" of the recommendations which would be debated when parliament resumes. The Financial Secretary to the Treasury. but should "begin immediately to put its house in order". His main recommendations include:      Introducing a new regulatory structure for Libor. the British Bankers' Association (BBA). ” Robert PestonBusiness editor  Read more from Robert He added that the banking industry should not wait for changes to be imposed.

" Barclays is the only bank to have been fined so far. for example. Barclays was fined £290m because its traders tried to rig Libor. he said. so they had an interest in pushing the rate up or down. "The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust . A high figure might call into question a bank's creditworthiness.A group of large banks submit daily estimates of the rates they are paying to borrow money. The BBA said it would work closely with the government and regulatory bodies towards this. there was a web of traders that worked together to try and manipulate Libor to benefit one another. On the basis of the submissions." Mr Wheatley said. . "They were allowed to do this freely with no oversight. and it is released to the financial markets. but a systemic problem. In a stinging criticism of the BBA. At the height of the financial crisis when bank finances were weak.it has torn the very fabric that our financial system is built on. and revelations that other banks were implicated. In June." Mr Wheatley said. Mr Wheatley said it was "the most important figure in finance". there was an incentive to submit a low Libor figure. 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". Mr Wheatley said that Libor rigging had been across the board: "We are not talking about a few rogue individuals here. Chancellor George Osborne asked Mr Wheatley to review Libor. financial firm Thomson Reuters calculates the Libor rate on behalf of the BBA. Libor could impact traders' bonuses. Libor sets a benchmark for more than $300 trillion (£185tn) worth of loans and transactions. but it is understood at least 15 banks globally are being investigated for possible Libor manipulation. 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. In the case of Barclays. Following the scandal.