The British Bankers’ Association (BBA) has called on the UK government to review future regulation of the London Interbank Offered Rate (LIBOR), following total fines of US$452.5m imposed on Barclays on 27 June for the manipulation of the benchmark interest rate between 2005 and 2009 and the on-going investigation into other banks, including RBS, HSBC, Citigroup and others – see Barclays Fined US$452.5m by US and UK Regulators for LIBOR Manipulation.
The trade association, which collates LIBOR, launched its own review in March when regulators first began their investigation, and said in a statement: “The BBA is shocked by the report about LIBOR. As part of this review we will now be asking the authorities to consider in what manner the LIBOR setting mechanism should be regulated in the future.” The BBA originally developed LIBOR in 1986, to meet the London market’s demand for a reliable benchmark. It then went global, setting the base rate for treasurers’ derivative hedges and consumers’ borrowings.
As the interbank lending rate is still overseen by the BBA, although it is set by Thomson Reuters, on a daily basis, Libor acts as the benchmark measure for the rates at which major banks borrow from one another and others from them. As such, it sets the pricing applicable for derivatives deals, many commercial and some residential mortgages, as well as a growing number of commercial loans by banks to corporates.
Separately, British Chancellor of the Exchequer George Osborne said that the UK government will consider widening the criminal market abuse regime to include over-the-counter (OTC) derivatives and manipulation of LIBOR, amid calls for the errant bankers to be jailed. Osborne added that the exposed malpractices were “a shocking indictment of the culture at banks like Barclays”, but it was likely that other banks would also be found to have been in breach of their duties by permitting traders to distort basic data relating to LIBOR and an investigation would “concern a number of institutions based both in the UK and overseas.”
In a speech to the House of Commons, Osborne also admitted that the powers of the UK financial sector regulator, the Financial Services Authority (FSA) did not, however, extend to “criminal sanctions for the regulation of LIBOR” and suggested that while the FSA could force senior managers found guilty to resign, its powers fell short of bringing criminal charges.
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The country is expected to survive the review, which it must do to retain its place in the European Central Bank’s asset purchase programme.
The bank believes that the battered UK currency, recently only just holding above the US$1.20 level, could be trading at US$1.36 by this time next year.
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