Bankers who attempt to manipulate Libor will be hit with the “full force of the law”, the government warned yesterday as it endorsed the City regulator’s plan to overhaul the inter bank lending rate.
Greg Clark, Financial Secretary to the Treasury, said the Coalition had accepted recommendations from the Financial Services Authority (FSA) to reform the benchmark measure, which is used to set interest rates for trillions of pounds worth of international lending each day.
Martin Wheatley, managing director of the FSA, outlined the proposals last month in the wake of the GBP 290m fine imposed on Barclays for manipulating Libor. His recommendations included up to seven years in prison and a multi million-pound fine for anyone who deliberately manipulates markets for their own profit should face.
Wheatley also proposed that responsibility for setting Libor be taken away from the British Bankers’ Association (BBA) and given to the new Financial Conduct Authority, which he will become chief executive of when it comes into operation next year.
The FSA will also encourage more banks to submit quotes as part of the rate-setting process and could even force uncooperative banks to submit quotes with its new powers.
Speaking yesterday, Clark said: “The government is determined to restore the credibility of Libor, that is why we have accepted Martin Wheatley’s recommendations in full and will begin the process of implementing them without delay.
”The government’s changes to legislation will ensure that those that attempt to manipulate Libor face the full force of the law. But this is just one part of the process; the banks and the BBA will have to play their part to ensure that reform is effective and Libor’s reputation is restored.”
The Treasury said the recommendations will be included as amendments to the Financial Services Bill, which is currently in the final stages of approval in Parliament.
“If someone breaks the law, they should be punished,” Clark added. “When the crime is serious, they should be locked up. This should be as true for criminals who steal through financial manipulation as it is for those who break and enter.
“Indeed, just as sentences handed down to those who were convicted in last year’s riots reflected their contribution to the breakdown in the confidence and security enjoyed by ordinary working people, so must a similar premium apply to those crimes which destroy trust that so many people depend on.”
At least a dozen banks are being investigated by regulators over claims that they colluded to manipulate the benchmark rate to profit from their derivatives positions.
Royal Bank of Scotland is widely expected to be the next lender to settle charges of attempting to manipulate Libor. Earlier this month, the lender was reported to have suspended its head of rates trading for Europe and the Asia-Pacific region. Jezri Mohideen is believed to have been suspended on October 12 and is reckoned to be the first senior manager to be put on leave as part of the bank’s Libor-rigging investigation.
RBS has so far refused to confirm or deny his departure.
“Our investigations into submissions, communications and procedures relating to the setting of Libor and other interest rates are ongoing. RBS and its employees continue to cooperate fully with regulators,” it said in a statement on Monday.