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Home > Regulation > UK Regulation

By Ashley Wassall | Published Aug 10, 2012

FSA’s Wheatley warns of EU obstacles to Libor powers push

Upcoming European regulatory initiatives may thwart attempts by UK regulators to reform powers to bring criminal sanctions against those that are found to have manipulated bank lending rates, according to Financial Services Authority managing director Martin Wheatley.

Mr Wheatley, who is chief executive designate of the incoming Financial Conduct Authority and is leading an independent review into the process of setting the London interbank lending rate, said in a speech today (10 August) reforms to the current system should be considered to toughen up the current regulatory regime.

He said that the discussion paper from the review, published earlier today, specifically proposes enhancing regulatory and criminal sanctions and boosting the FSA’s powers to prosecute individuals.

He said as part of this the review was looking to explore whether contribution to Libor should be made compulsory for banks rather than voluntary and whether the approved persons regime needed to updated for Libor-related activities.

However, he said that while the paper considers “some of the technical elements to changes in the law”, he was aware of the need to “be mindful of the work being undertaken by the European Commission on its Market Abuse Framework”.

In the wake of the recent furore over rigging of Libor, which is a key determinant in the setting of interest rates and liquidity availability across the banking sector, the Serious Fraud Office has said it will look into bringing criminal sanctions against individuals found to be culpable.

However, several commentators and legal experts have questioned the ability of regulators to do this under current rules.

One commercial lawyer said the SFO will struggle to secure convictions as the law in this area is “inadequate”, highlighting that there is no legal obligation to disclose rates and that proof of fraud would require proof that any statements made were dishonest and explicitly intended to make a gain.

Mr Clarke said: “The problem is, in the main, they put Libor rates down so people would have benefited.

“They may have made dishonest statements but lacking intent to make financial gain. The SFO will need to find some really explicit emails which explains how the banks will make financial gains out of this.”

The paper states generally that it is “not an option” to retain Libor in its current form and that the system either needed to be reformed, replaced or a combination of both to bring in different systems for different activities.

Suggestions outlined in the document include scrapping Libor and replacing it with a rate based on actual trades that is overseen by an independent body, rather than the British Bankers’ Association.

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