Regulation  

Benchmark riggers now face up to seven years in prison

Government will extend the legislation originally put in place to regulate Libor to cover seven further financial benchmarks, with those found guilty of manipulating them now facing up to seven years in prison.

The action is in response to an early recommendation from the Fair and Effective Markets Review, which was established by the chancellor in June.

While the review will publish its final report in June 2015, a consultation began in September to cover more benchmarks, with the government today (22 December) stating that it will extend the legislation covering Libor to the following seven major benchmarks:

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• WM/Reuters 4pm London Fix, which is the dominant global foreign exchange benchmark;

• Sterling Overnight Index Average (SONIA) and the Repurchase Overnight Index Average (RONIA), which both serve as reference rates for overnight index swaps;

• ISDAFix, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions;

• London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market; and

• ICE Brent index, which acts as the crude oil market’s principal financial benchmark.

The changes will extend the criminal offence of manipulating a ‘relevant benchmark’ originally introduced for Libor to any person manipulating these seven benchmarks.

The Financial Conduct Authority said in a statement: “Today’s action applies the high standards we expect of firms in relation to Libor to benchmarks in these vitally important markets, ensuring that market participants can be confident in the fairness and integrity of the benchmarks they use.”

They will also subject administrators of, and submitters to, these benchmarks to a number of specific rules, and authorised firms will face a range of sanctions if they breach any of the Financial Conduct Authority’s rules and principles – including financial penalties, suspensions and censures.

In November the FCA and Prudential Regulation Authority fined five banks a total of more than £1bn following attempts to manipulate FOREX markets, with individuals facing criminal investigation by the Serious Fraud Office.

Ahead of the legislation announced today coming into force, the FCA will consult on their draft rules and then publish final rules. The government intends for the legislation to commence on 1 April 2015.

Martin Wheatley, chief executive of the FCA, added: “I am determined to ensure that markets work well and preserve the UK’s reputation as a centre of excellence for financial services – this builds on our work to strengthen LIBOR, and drive up standards on benchmarks across the board.”

peter.walker@ft.com