Urgent changes to the way banks are run and regulated are needed to restore public confidence after the Libor rate-rigging scandal, an MPs’ report says.
The scandal emerged in June when UK and US authorities fined Barclays £290m for fixing a key inter-bank interest rate.
The Treasury Select Committee blames bank bosses for “disgraceful” behaviour which damaged the UK’s reputation – the bank says it knows changes are needed.
The MPs also criticise the FSA and Bank of England’s regulatory supervision.
And they accuse ex-Barclays chief executive Bob Diamond of giving them “highly selective” evidence.
Committee chairman Andrew Tyrie said: “The committee has called for action in a number of areas, including: higher fines for firms that fail to co-operate with regulators, the need to examine gaps in the criminal law, and a much stronger governance framework at the Bank of England.
“Urgent improvements, both to the way banks are run, and the way they are regulated, is needed if public and market confidence is to be restored.”
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The finger of blame has been pointed at both the regulators – the Financial Services Authority and the Bank of England – but also at Barclays management.
And the case for a series of reforms that are being called for – both for the way Libor is calculated and also the way the financial services industry is regulated- has been underlined.
While this is the first investigation, it’s by no means the last. An investigation by the Serious Fraud Office is already under way and that has the power to bring criminal proceedings.
There is also a separate investigation in the US. That, this week, issued subpoenas to seven international banks asking it to provide evidence for its investigation.
Reforms really would go some way to restoring confidence in what is a pretty battered financial services industry.
But – given that this report also highlights that several other banks are likely to be involved in this, and with these other investigations now under way – it’s likely that this Libor case and the implications of who did what and when will take many weeks, months or years to really unravel.
The MPs said that the rate-rigging had done “great damage” to the UK’s reputation.
They firmly blamed the bosses of Barclays bank for the way their staff tried to manipulate the Libor rate-setting process at various times between 2005 and 2009, in what the committee’s chairman called a period of “extremely weak internal compliance and board governance at Barclays” and a “failure of regulatory supervision”.
“Senior management at Barclays were issuing instructions to manipulate artificially the bank’s submissions. It is unlikely that Barclays was the only bank attempting this,” said Mr Tyrie, who is a Conservative MP.
Mr Diamond resigned as Barclays chief executive the day before he gave evidence to MPs.
Mr Tyrie said his evidence was at times “highly selective” and “fell well short of the standard that Parliament expects, particularly from such an experienced and senior witness”.
The MPs accused Barclays of trying to pull the wool over their eyes by publishing, before Mr Diamond’s committee appearance, a note of a phone conversation between Mr Diamond and Paul Tucker, the deputy governor of the Bank of England.
Barclays had said this showed the Bank of England had inadvertently given the impression that it would approve attempts by Barclays to submit low and inaccurate Libor submissions, in order to avoid giving the impression that it was having difficulty in raising funds at the height of the financial crisis.
“It remains possible that the information released in the Barclays file note, regarding a dialogue between Mr Tucker and [Mr] Diamond, could have been a smokescreen put up to distract our attention and that of outside commentators from the most serious issues underlying this scandal,” Mr Tyrie said.
“Barclays did not need a nod, a wink or any signal from the Bank of England to lower artificially their Libor submissions. The bank was already well practised in doing this,” the report says.
Responding to the MPs’ report, Barclays said that although it did not expect to agree with all the findings, it will “carefully consider this comprehensive report” and recognised that change was required, adding that it had established an independent review of its business practices for that reason.
Labour’s Chris Leslie said the chancellor would need to take “significant steps in the current Banking Reform Bill and beyond” in order to “rebuild public and global market confidence in the UK financial services sector”.
“We know that Libor manipulation extends beyond just Barclays and we need to see the full picture as soon as possible,” he said.
In their report, the MPs accuse both the Bank of England and the FSA of bungling their eventual attempts to make sure that Mr Diamond took responsibility for the Libor scandal by eventually resigning from his post at Barclays.
The report says the authorities only appeared to act in response to public pressure, and that the Bank of England’s Governor, Sir Mervyn King, did not in fact have any authority to act as he did and intervene to decide if an individual was suitable to run a UK bank.
The Bank of England is accused of being “naive” about the possibility of Libor manipulation during the financial crisis and of being “relatively inactive”.
But the MPs say the failure of the FSA, the main bank regulator, to do its job and properly investigate the market rumours was far worse.
Reform of the way Libor is calculated is currently being reviewed by the managing director of the Financial Services Authority, Martin Wheatley, at the request of the government.
In their report, the MPs said he should recommend changes to the financial services and markets laws to make it easier to prosecute attempts to manipulate Libor or any other similar rates.