Libor Raises Doubts Over All Markets, City Minister Says

U.K. City Minister Andrea Leadsom said the rigging of the Libor benchmark raised doubts about all other markets and highlighted the need for effective oversight.

Leadsom, who as economic secretary to the Treasury under Chancellor of the Exchequer George Osborne has responsibility for the City, London’s financial district, said her fears stem from her experience working at Barclays Plc from 1987 to 1997.

“I had my time in the dealing room, where I took the view that the money-market guys were the honest ones with the cardigans and beards; they would never fiddle anything,” Leadsom said in an interview published today in The House magazine, which is distributed to lawmakers. “The day we heard about the Libor rigging, I just thought: ‘well, if Libor is rigged, then what wasn’t rigged?’”

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 benchmark interest rates such as the London interbank offered rate, with the investigation yet to finish.

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.

Criminal Charges

Traders who manipulate currency rates or borrowing costs would face criminal charges under plans announced by Osborne last month. Laws imposing as much as seven years in jail for Libor manipulation will be extended to gauges used in foreign-exchange, fixed-income and commodity markets, he said.

Britain’s markets regulator should investigate whether the closing prices of stocks are being manipulated, lawmakers said yesterday.

“This is something which is very widely spoken about among equity traders,” Mark Garnier, like Leadsom a member of Prime Minister David Cameron’s Conservative Party, said at a hearing of Parliament’s Treasury Committee. “This is not a minor thing. This is a big deal.”

Leadsom said she expects more revelations of wrongdoing in the U.K. financial-services industry, though she wants to look to a “positive future” while uncovering mistakes and illegal activity.

‘Cringeworthy Announcements’

“There’s quite a long way to go to really change the culture,” she said. “I think it did become very transaction-oriented and I think it will take time to recover that. I think we are still going to see a lot of cringeworthy announcements.”

The takeover of small brokers and equity companies by banks and asset-management groups contributed to cultural change in the City that removed some of the risk of failure, Leadsom said. Increased competition through challenger banks will improve transparency and work alongside regulation to stop wrongdoing, she said.

“The whole concept that they used to have of a partnership, where ‘if I make a mistake I lose my shirt and my children leave their private school’ and that sort of scary thing, literally became huge golden hellos, massive bonuses and no downside,” Leadsom said of the 1990s. “I absolutely remember thinking at the time ‘why doesn’t the Monopolies and Mergers Commission think anything about this?’”

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