Libor Manipulators ‘Should Face Prosecution’: UK Regulator

September 28, 2012United Kingdomby EW News Desk Team

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Those who manipulate the London Interbank Offered Rate could and should face criminal prosecution, said the Financial Services Authority today. The ‘broken’ Libor system will also get a ‘complete overhaul’ through tougher regulation.  

Martin Wheatley, managing director of the FSA told the BBC’s Today programme on Friday morning that bankers guilty of fixing Libor could be imprisoned in the future.

Noting that “society has lost its confidence in banks, in finance and in the whole system”, Wheatley explained that the firms involved in Libor were regulated but not the market itself, and called for a new legislation that would make it an offense to make false or misleading statements to manipulate Libor.

He said:

The reason we are here … is that we have been misled. 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.

Barclays is the only bank to have been fined so far, but it is understood that at least 15 banks globally are being investigated for possible Libor manipulation.

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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 millions of companies and individuals.

Calling it the “most important figure in finance”, Wheatley said Libor is a benchmark for more than $300 trillion worth of loans and transactions.

As a result of the Libor-rigging scandal, Wheatley acknowledged that society wanted people who committed these sort 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 criticized the British Bankers’ Association for “clearly failing” in its supervision of Libor and recommended that the association should be stripped of its responsibilites.

The BBA, which voted last week to relinquish control of Libor, 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.

In a bold effort to restore faith in Libor, Wheatley has proposed sweeping reforms that includes a radical pruning of the number of rates it offers, as well as requiring more banks to submit Libor estimates to minimize the influence of individual institutions.

Read the full Wheatley report here: http://bit.ly/QtXH4N

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