Legal

UK Regulator's Chairman Says LIBOR Scandal Is "Huge Blow" To London's Reputation

Tom Burroughes Group Editor 5 July 2012

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The chairman of the UK's Financial Services Authority
yesterday condemned the “huge blow” inflicted on the reputation of the
London banking industry by people who have manipulated inter-bank
interest rates, in a speech coming shortly after Barclays’ chief
executive and chief operating officer quit amid the scandal.

Adair Turner
said that the old perception that the FSA was “not an enforcement-led
regulator” has changed, and the shift has been clearly demonstrated by
the tough action it took against Barclays over LIBOR manipulation.
Barclays has incurred penalties from US and UK authorities totalling
£290 million (around $455 million) for misconduct relating to the
inter-bank interest rate market.

Turner commented on the same day that Bob Diamond resigned as chief
executive of Barclays, shortly followed by the resignation of the
UK-listed bank’s chief operating officer, Jerry del Missier. Both men
resigned with immediate effect. It is understood that the FSA is
investigating a number of other financial institutions for allegedly
rigging LIBOR rates that are the basis for many financial products used
around the world. Diamond is due to give evidence to the UK’s House of
Commons Treasury Select Committee today; media reports have focused on
communications that Diamond is said to have had with the Bank of England
about the interest rate market.

Turner, in his speech to the FSA’s annual meeting, highlighted the
shift in how the regulator oversees financial markets, explaining
changes since the financial crisis broke in 2008. He was scathing about
the LIBOR scandal.

“The LIBOR scandal has caused a huge blow to the reputation of the
banking industry. The cynical greed of traders asking their colleagues
to falsify their LIBOR submissions so that they could make bigger
profits has justifiably shocked and angered people, in particular when
we are facing hard economic times provoked by the financial crisis,”
Turner said.

“Further investigations relating to LIBOR are ongoing; and
investigations of this type require very significant resources and take
several years to launch, develop and bring to conclusion. The successful
completion of one aspect of the case last week therefore reflects
approaches and resources put in place and built up over the last several
years,” Turner said.

He continued: “Too much of what is described in the investment
banking world as 'creative' or 'innovative' , is not creative or
innovative on behalf of the real economy, but devoted to tax structures
which simply shift money from the generality of taxpayers to the
financial sector, to regulatory arbitrage which seeks to gain an
improved regulatory treatment of unchanged economic substance, or to
accounting devices which attempt to put a favourable gloss on the
underlying situation of firms or their clients, for instance
understating a country’s true level of debt.”

The FSA has appointed John Griffith-Jones as deputy chairman of the
FSA and FCA (Financial Conduct Authority) chair designate from 1
September.

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