FSA Says Barclays Not Alone as Prosecutors Weigh Libor Probe
The U.K. finance regulator has “a number of investigations concerning Libor” beyond the case that resulted in a record fine levied against Barclays Plc (BARC) last week, the agency’s acting head of enforcement said.
Barclays put “the interest of the bank and its traders” ahead of customers, Tracey McDermott said in a speech today. Separately, U.K. fraud prosecutors said they would decide whether to open a criminal probe into attempts to manipulate the rates “within a month.”
Barclays “was not an isolated case,” the Financial Services Authority’s McDermott said. “You will hear more of this in due course.”
Britain’s second-biggest bank was fined $451 million last week in the U.K. and U.S. after it admitted to submitting false Libor rates to benefit derivatives trades and bolster its own financial position. Chancellor of the Exchequer George Osborne told lawmakers today that Martin Wheatley, designated to become chief executive officer when the FSA becomes the Financial Conduct Authority, will conduct an inquiry into the functioning of the London interbank offered rate.
The case offers the most detailed public account of the conduct that prompted regulators and criminal authorities on three continents to investigate whether traders colluded to rig interest rates and banks sought to bolster their perceived stability by hiding their true borrowing costs in 2008.
Citigroup Inc., Royal Bank of Scotland Group Plc (RBS), UBS AG (UBSN), ICAP Plc, Lloyds Banking Group Plc (LLOY) and Deutsche Bank AG are among the firms some regulators are investigating. A total of 18 banks are surveyed as part of the process of determining Libor and related rates.
Osborne told lawmakers last week that the FSA was in touch with prosecutors at the Serious Fraud Office about a possible criminal investigation. Opposition Labour leader Ed Miliband and London Mayor Boris Johnson both called for criminal probes.
Osborne said today he welcomes the SFO’s confirmation that they are pursuing the case and “will encourage them to use every legal avenue available to them,” including fraud and false accounting charges.
“The issues are complex and the assessment of the evidence the FSA has gathered will take a short time,” the SFO said in an e-mailed statement.
Richard Alderman, who stepped down as director of the SFO two months ago, had said the agency wasn’t involved in the inquiry. People familiar with the probe said last month that individuals in the case were unlikely to face a criminal investigation in the U.K. and that suspects were told to expect civil penalties. The U.S. Department of Justice is already conducting a criminal probe.
‘Fraud Is Crime’
“Fraud is a crime in ordinary business, why can’t it be so in banking?” Osborne said today.
Barclays is assisting the investigation into other firms and individuals and was the first to provide “extensive and meaningful cooperation,” the U.S. Justice Department said.
Arlene McCarthy, a member of the European Parliament from the U.K., called for stronger European Union market abuse rules to include jail sentences in situations like the Libor scandal.
“There is no doubt that this is market manipulation of the worst kind,” McCarthy said in an e-mailed statement. “Fines have proved ineffective and have not changed the greedy culture in the banking industry.”
Wheatley’s inquiry, to conclude this summer, will look into whether Libor setting should be regulated, whether actual trade data can be used to set the benchmark, and “the adequacy of the U.K.’s current criminal and civil sanctioning powers with respect to financial conduct, and market abuse with regards to Libor,” Osborne said.
The FSA’s biggest challenge is that financial services “is no longer an industry that society respects and has confidence in,” McDermott said. “Last week’s penalty should have dispelled” any doubt of that, she said.
Osborne said last week the number of people under formal investigation by the FSA is “expected to increase.” The regulator can’t prosecute for Libor manipulation itself and needs more powers to bring criminal charges, FSA Chairman Adair Turner said yesterday on the BBC’s “Andrew Marr Show” in London.
If “left to its own devices,” the industry can’t regulate itself, McDermott said. “Perhaps the events of last week will be a watershed moment, where the industry realizes that it has to rise to the challenge.”
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