FSA Deserves Blame for Missing Libor Rigging, Tyrie Says

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The U.K.’s financial regulator is partly to blame for not detecting efforts by banks it supervised to rig benchmark interest rates for several years, lawmaker Andrew Tyrie said.

The Financial Services Authority didn’t identify or deal with weak compliance at Barclays Plc before it and U.S. authorities fined the bank 290 million pounds ($441 million) for rigging the London interbank offered rate and similar benchmarks, the Treasury Select Committee led by Tyrie said in a report released today.

“The systemic rigging of important rates appears to have been pervasive in the banking industry over a long period of time,” Tyrie said in a statement on the findings. “Serious regulatory shortcomings also came to light. It is only right that the FSA has had to shoulder its share of the blame for this scandal.”

The FSA, which along with U.S. regulators fined Barclays, UBS AG and the Royal Bank of Scotland Group Plc more than $2.5 billion, has “increased the intensity of our supervision, including our focus on firms’ control functions and board oversight,” it said in response to the committee report.

Owen Watkins, a regulatory lawyer at Lewis Silkin LLP in London said that, while “a large amount of this is politics” he thought there was “a core of truth.”

Traders, Submitters

“How for instance did the many FSA supervisory visits fail to spot the close links between traders and rate submitters -- particularly when the two were often in extremely close physical proximity?” Watkins said. “The answer may lie in the culture at the time -- light touch regulation, and only looking at institutions in terms of very narrowly defined issues.”

The regulator’s internal audit department is also reviewing any contact with Barclays to determine whether the agency missed warning signs on its Libor activities. The FSA told the committee the probe is focused on the period from January 2007 until the end of May 2009, and will be completed this quarter.

Adair Turner, the chairman of the FSA, told the committee in July that Barclays employees who contacted them “weren’t being entirely honest” when discussing difficulties setting Libor. Barclays employees talked about “dislocations” in the benchmark and didn’t say that anyone was submitting false rates.

(Updates with lawyer comment in fifth paragraph.)
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