The body responsible for ensuring the City acts within the law today admitted they should have acted in 2008 to prevent the Libor rate-fixing scandal. Martin Wheatley from the Financial Services Authority said:
"With the benefit of hindsight, there were some emails floating about in 2008, that have been published. With the benefit of hindsight, yes we should have stepped in earlier"
– Martin Wheatley, FSA managing director
Society has lost confidence in banks, in finance, in the whole system, and we need to restore that. Society wants the people who commit these sorts of crimes to pay the price and if that includes jail for the most extreme fraud in the system, then that's what should happen.
Accusing the British Bankers' Association (BBA) of having "clearly failed" in overseeing Libor, City regulator Martin Wheatley will say today the BBA will lose its responsibility for managing the process.
It is inviting other groups to apply to take over the role overseeing Libor and wants the new managing body to draw up a code of conduct and carry out regular audits.
In response, the BBA described the Wheatley Review as an "essential step".
– The British Bankers' Association
The BBA has strongly stated the need for greaterregulatory oversight of LIBOR, and tougher sanctions for those who try tomanipulate it. The BBA Council has indicated it would support anyrecommendation that responsibility for LIBOR should be passed to a new sponsor.
Theabsolute priority now for everyone is to ensure the provision of a reliablebenchmark which has the confidence and support of all users, contributors andglobal regulators, and we will work closely with the Government and regulatorybodies to ensure this.
The London Interbank Offered Rate (Libor) is a benchmark that governs the rates at which banks are prepared to lend to each other in the wholesale money markets.
It was relatively unknown outside the City before being thrust into the spotlight when the rate rigging at Barclays came to light.
Here are some facts about the banking scandal and the banks involved:
- Barclays was fined £290 million in June for trying to manipulate Libor to paint a flattering picture of its financial health to markets.
- Banks globally are thought to have fixed Libor in the depths of the financial crisis, because a high rate reflects badly on the state of a bank's balance sheet.
- Libor spiked to a historic high of 6.8% at the height of the credit crunch, but should be roughly the same as the Bank of England base rate.
- It is thought at least 15 institutions worldwide are being investigated for possible Libor manipulation.
- In August, Royal Bank of Scotland, Barclays and HSBC were among seven banks handed legal notices demanding that they assist in a US inquiry.
- Lloyds Banking Group is also being probed by US authorities over alleged Libor rigging after Florida's state regulator summoned the bank to answer questions.
The Treasury has given its initial backing to the Libor rate-fixing scandal review's recommendations and said it was clear self-regulation of the system had failed.
– Greg Clark, Financial Secretary to the Treasury
Today’s independent report is very clear – the self-regulation of Libor has failed. It’s yet another example of the broken regulatory system that this Government is committed to fixing.
Libor is a hugely important international benchmark and this report makes a series of comprehensive and practical recommendations designed to restore its credibility.
The Chancellor tasked City regulator Martin Wheatley with reviewing the Libor process in July following Barclays' £290 million fine for rate-rigging.
Mr Wheatley will say today while Libor did not need to be replaced, urgent reforms were vital.
– City regulator Martin Wheatley
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.
Unscrupulous bankers will face criminal prosecution under far-reaching reforms designed to prevent a repeat of this summer's interbank rate-fixing scandal.
In a speech today, Financial Services Authority (FSA) managing director Martin Wheatley will reveal a 10-point plan to overhaul the Libor system and stamp out the "shocking behaviour" that led to systemic rate manipulation at the height of the financial crisis.
The process needs to be regulated by the FSA, with those that submit rates formally approved by the City watchdog and bankers who break the law subject to criminal sanctions, he will say.