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Libor interest rate riggers 'should face prosecution' | |
(about 3 hours later) | |
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. | |
It recommends a complete overhaul of a system that is "broken" and led to "shocking behaviour". | |
The financial regulator Martin Wheatley told the BBC that bankers guilty of fixing Libor in future could be jailed. | |
"Society has lost confidence in banks, in finance, in the whole system." | |
Mr Wheatley, who led the review, 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". | |
He also wants the banking association that supervises Libor, the British Bankers Association (BBA) to be stripped of the role, saying it "clearly failed". | |
In June, Barclays was fined £290m because its traders tried to rig Libor. | 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, managing director of the Financial Services Authority, to review Libor. | Following the scandal, and revelations that other banks were implicated, Chancellor George Osborne asked Mr Wheatley, managing director of the Financial Services Authority, to review Libor. |
Mr Wheatley says that although the interest rate does not need replacing, urgent reforms are vital. | |
Libor - the London Interbank 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. | |
Libor sets a benchmark for more than $300 trillion worth of loans and transactions. | |
Mr Wheatley said it was "the most important figure in finance". | |
"The reason we are here, however, is that we have been misled," he said. "The system is broken and needs a complete overhaul. | |
"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." | "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." |
'Careless' | 'Careless' |
People, he says, "were rightly upset that something so important was so badly run, had such poor governance, and was manipulated without regard to the consequences". | People, he says, "were rightly upset that something so important was so badly run, had such poor governance, and was manipulated without regard to the consequences". |
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". | |
His recommendations include: | |
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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. | |
But Mr Wheatley said the system was riddled with flaws. Libor could impact traders' bonuses, 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. | 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. |
Conflicts of interest | Conflicts of interest |
Mr Wheatley said: "What's more and worse, is that 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. | |
"To sum up, the system had in-built conflicts of interest from the start - banks could submit what they wanted - and with traders' bonuses dependent on the Libor rate, and no bank wanting to be seen as vulnerable in such a transparent system, too many people had a vested interest in gaming the system." | "To sum up, the system had in-built conflicts of interest from the start - banks could submit what they wanted - and with traders' bonuses dependent on the Libor rate, and no bank wanting to be seen as vulnerable in such a transparent system, too many people had a vested interest in gaming the system." |
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. | 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. |
The Treasury has given its initial backing to the review's recommendations and said it was clear that self-regulation of the system had failed. | The Treasury has given its initial backing to the review's recommendations and said it was clear that self-regulation of the system had failed. |
Ahead of Mr Wheatley's speech, Greg Clark, financial secretary to the Treasury, said: "Libor is a hugely important international benchmark and this report makes a series of comprehensive and practical recommendations designed to restore its credibility". | Ahead of Mr Wheatley's speech, Greg Clark, financial secretary to the Treasury, said: "Libor is a hugely important international benchmark and this report makes a series of comprehensive and practical recommendations designed to restore its credibility". |
The much-criticised 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 much-criticised 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 absolute priority now for everyone is to ensure the provision of a reliable benchmark which has the confidence and support of all users, contributors and global regulators, and we will work closely with the government and regulatory bodies to ensure this," the BBA said in a statement. | "The absolute priority now for everyone is to ensure the provision of a reliable benchmark which has the confidence and support of all users, contributors and global regulators, and we will work closely with the government and regulatory bodies to ensure this," the BBA said in a statement. |
Consumer group Which? called on the government to take forward the recommendations as soon as possible. | Consumer group Which? called on the government to take forward the recommendations as soon as possible. |
Richard Lloyd, executive director of Which?, said: "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." | Richard Lloyd, executive director of Which?, said: "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." |