Traders who manipulate currency rates or borrowing costs would face criminal charges under plans to be announced by Chancellor of the Exchequer George Osborne in a crackdown on bankers less than a year before a general election.
The government is poised to extend laws imposing as much as seven years in jail for Libor manipulation to gauges used in foreign-exchange, fixed-income and commodity markets, according to a statement by the Treasury before Osborne and Bank of England Governor Mark Carney speak at London’s Mansion House today. The measures are part of a review by the Treasury, BOE and the Financial Conduct Authority of how markets operate.
“Markets here set the interest rates for people’s mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy,” Osborne will say, according to the statement. “I am going to deal with abuses, tackle the unacceptable behavior of the few and ensure that markets are fair for the many who depend on them.”
The measures follow scandals that roiled the country’s financial industry. Regulators on three continents are probing allegations traders sought to rig the $5.3 trillion-a-day currency market, while concern is growing that other benchmarks such as the London gold fixing may be vulnerable to abuse. So far, at least nine firms have been fined more than $6 billion for manipulating the London interbank offered rate, with the investigation yet to finish.
“From the point of view of the reputation for the City of London and our financial services, the cleaner we’re seen to be, the better in the long run,” said Robert Rhodes, a senior London-based trial lawyer. “It is perhaps surprising that more benchmarks weren’t dealt with at the time they dealt with the Libor scandal. The government has obviously now realized the seriousness and breadth of this issue.”
Libor is calculated by a daily poll that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. Traders sought to manipulate the benchmark for profit by making artificially high or low submissions to influence the final rate.
The government last year introduced unlimited fines as well as the threat of jail for those found guilty of making “false or misleading statements” about interbank offered rates, according to the FCA. Insider dealing carries the same seven-year maximum prison sentence.
The 12-month Fair and Effective Markets Review will first identify which specific benchmarks will be subject to criminal sanctions, according to a Treasury official. The final list should be submitted in the fall, said the official, who asked not to be identified because the information isn’t public.
“We in this country have to be absolutely clear that we are trying to set the gold standard of financial regulation to the rest of the world,” Mark Garnier, a member of the Conservative party who sits on the Treasury Select Committee, said. Given the U.K.’s large presence in currency markets, “foreign exchange really is our best product and it’s really important that we are taking the right steps to maintain that preeminent position.”
The review will then open a consultation on what additional action should be taken to ensure fair and effective global financial markets, some of which may need international agreement, according to the statement.
Non-British banks with operations in the U.K. will also come under rules, still being drafted, that are aimed at making top executives responsible for their employees’ actions, the Treasury said.
The U.K. won’t adopt European Union market-abuse rules, and will pass its own that will be “as strong or stronger,” according to the statement. The government will seek to “preserve flexibility to reflect specific circumstances in the U.K.’s globally important financial sector,” the Treasury said.
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