Bank staff found guilty of future attempts to rig interbank lending rates may face jail under European Union plans to prevent any repeat of the global scandal engulfing Libor.
The European Commission, the 27-nation EU’s executive arm, will propose tomorrow that manipulation of Libor, Euribor and other so-called market benchmarks should be subject to criminal sanctions, the authority said in an e-mailed statement today. Attempted manipulation would be punishable by fines and other administrative sanctions, the commission said.
“No financial player, no financial product and no financial market should escape effective regulation and supervision,” Michel Barnier, the EU’s financial services chief, said in a separate statement on his website.
Confidence in Libor, a benchmark for financial products valued at $360 trillion worldwide, has been shaken by Barclays Plc’s admission that it submitted false rates. Robert Diamond, who resigned as London-based Barclays’s chief executive officer after the bank was fined 290 million pounds ($451 million), told British lawmakers this month that other banks also lowballed Libor submissions.
The proposals will set out “specific provisions prohibiting the manipulation of benchmarks” and making such acts “a criminal offense,” Barnier said.
The Barclays fine has provoked renewed calls for tougher oversight of the financial system and pushed regulatory probes of interbank lending rates to the top of the political agenda.
The scandal has provoked public “fury about values” in the financial industry, Adair Turner, chairman of the U.K. Financial Services Authority, said in an event at the Bloomberg offices in London today.
Interbank lending rates are used as a benchmark throughout the global financial system for fixing interest rates on other products, including consumer loans and mortgages.
“A stringent legal framework will act as a credible deterrent for this kind of behavior,” the commission said.
Unsuccessful attempts to rig interbank rates and other market benchmarks can still “have a serious impact” on confidence, the commission said. It’s “essential” that authorities can impose administrative sanctions on people found to have made such attempts.
Libor, the London interbank offered rate, is determined by a daily poll carried out on behalf of the British Bankers’ Association that asks banks to estimate how much it would cost to borrow from each other for different periods and in different currencies. Similarly, Euribor, the euro equivalent, is overseen by the European Banking Federation in Brussels.
Barnier said he welcomed an online petition in support of jail sentences for those found guilty of rigging interbank lending rates. The EU should adopt his market abuse proposals “quickly,” he said.
Barnier has said that his officials are also reviewing the governance of interbank lending rates, and the rate setting process itself.
Mervyn King, governor of the Bank of England, has called for central bankers to discuss steps to restore confidence in interbank rate-setting during a meeting at the Bank for International Settlements in Basel, Switzerland, in September. King chairs several BIS committees.
The Financial Stability Board, which brings together regulators, central bankers and finance ministry officials from the Group of 20 nations, will also discuss the matter, Mark Carney, the FSB’s chairman, said last week. He said it will be on the agenda of the board’s steering committee when it meets in Basel on Sept. 17.
The commission plans are intended to update a draft law published last year by Barnier. The proposals must be approved by lawmakers in the European Parliament and by national governments before it can take effect.
Arlene McCarthy, the legislator leading work on the draft market abuse law in the parliament, has said that the assembly will ensure that fixing of interbank rates is covered by the measures. The parliament last week published its own plans for doing this.
McCarthy has said that the assembly should hold hearings into the scandal.