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Libor interest rate riggers 'should face prosecution' Libor interest rate riggers 'should face prosecution'
(35 minutes 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.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.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.""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.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".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.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.
FinedFined
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 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: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
  • Changing some of the technical data on which the inter-bank rate is based
  • 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
  • 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
  • Changing some of the technical data on which the inter-bank rate is based
  • 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 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.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.
He added that the banking industry should not wait for changes to be imposed, but should "begin immediately to put its house in order".He added that the banking industry should not wait for changes to be imposed, but should "begin immediately to put its house in order".
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 to review Libor.Following the scandal, and revelations that other banks were implicated, Chancellor George Osborne asked Mr Wheatley to review Libor.
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". 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".
"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'
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".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".
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.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.
Libor could impact traders' bonuses, Mr Wheatley 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.Libor could impact traders' bonuses, Mr Wheatley 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.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 interestConflicts 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."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."
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 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 BBA said it would work closely with the government and regulatory bodies towards this.The BBA said it would work closely with the government and regulatory bodies towards this.
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."