Bankers who try to fix libor lending rates will face criminal action under a new regime announced by the Financial Services Authority (FSA).
BBA stripped of Libor role
In a speech this morning Martin Wheatley, managing director of the FSA, announced that the British Bankers Association (BBA) will be stripped of its responsibility for managing the interbank lending rate.
He said the banking trade body ‘clearly failed’ to effectively oversee Libor following the revelations in summer that some bankers had attempted to manipulate the rate to increase profits.
Libor scandal fallout
In June Barclays was fined £290m after it emerged some of their staff had submitted false lending data to the rate setting process between 2005 and 2009, with the aim of mislead traders and make the bank look more financially secure than it really was.
This may have affected the cost of loans and mortgages for consumers as banks use Libor when setting interest rates. Other banks are currently being investigated over similar suspected misconduct from their staff.
Tougher regulation of Libor system
Following a three month review Wheatley says that he now wants to see the Libor system closely regulated by the FSA’s successor, the Financial Conduct Authority. Banks will also have to submit transactional data to the new system to prove what rates they have been lending at rather than just estimates.
He also wants a new body to manage the system including introducing a new code of conduct and carrying out regular audits. Anyone found to be trying to manipulate the new system will face prosecution.
Mr Wheatley said that urgent reforms were vital to restore trust in the system. ‘Today we press the reset button. We need to get back to what this reference rate is supposed to do, restore integrity to a globally important benchmark, and make sure we get to a position where individuals act with integrity’, he said.
Big Change campaign
Which? executive director Richard Lloyd said: ‘The action announced today to help prevent another Libor rate-rigging scandal, including independent governance and regulation of Libor, is a vital step towards restoring the shattered consumer confidence in banking.
‘We are very pleased Martin Wheatley has recommended criminal sanctions for those who attempt to manipulate Libor. As we have said in our Big Change campaign, bankers must be punished for mis-selling and bad practice. By manipulating Libor, as far as we’re concerned, bankers were effectively stealing money – it’s bank robbery.
‘We now want to see the government take forward these recommendations as soon as possible. There must be no delay. Action must be taken to fix our broken banking system and bring a return to banks for customers, not bankers.’