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Libor scandal: FSA responds to MPs' report Libor trading 'still not clean' despite scandal
(about 9 hours later)
The Financial Services Authority (FSA) has defended itself against criticism of its role in the Libor scandal. The way that the key Libor interest rate is set in the UK is still not clean and free of fraud, according to a top US regulator.
"We have a lot more work to do," Gary Gensler, chairman of the Commodity Futures Trading Commission, told the BBC in London.
He suggested that the rate was often "completely made up".
A number of banks have been fined hundreds of millions of pounds for rigging the lending rate.
Mr Gensler is in London to meet officials at the Financial Services Authority, the City watchdog.
Libor, which is set in London, is meant to reflect the average rate that banks pay to lend to each other and is used to benchmark everything from car loans and mortgages to complex financial transactions around the world.
Banks are required to submit a daily estimate of how much it costs them to borrow from other banks.
Speaking of the scandal, Mr Gensler spoke of "pervasive rigging" and said authorities could not guarantee the rate is fraud-free, but refused to criticise the FSA or suggest that setting the rate should be moved to the US.
He also labelled the FSA a "terrific partner", as the FSA defended itself against criticism of its role in the Libor scandal by MPs.
The Libor scandal emerged in June last year when UK and US authorities fined Barclays £290m for fixing the key inter-bank interest rate. Since then, Swiss bank UBS and Royal Bank of Scotland have been given fines of £940m and £390m, respectively.
According to the CFTC, which hit RBS with a £208m fine, RBS made hundreds of attempts to manipulate the rates and succeeded on a number of occasions.
'Making it all up'
Mr Gensler compared the rate to an estate agent trying to sell you a house.
"They are trying to reference the price of the houses in the neighbourhood [when] there have been no transactions in the neighbourhood and furthermore, the agent is not willing to share the data and is often just making it all up," he said.
MPs on the Treasury Committee published their report "Fixing Libor" in August, which said the FSA had failed to investigate market rumours of rate-rigging properly.MPs on the Treasury Committee published their report "Fixing Libor" in August, which said the FSA had failed to investigate market rumours of rate-rigging properly.
Responding to that report, the City watchdog said it had been engaging with US authorities since 2008. Responding, the FSA said it had been engaging with US authorities since 2008.
It denied it had taken a narrow view of its power regarding fraudulent conduct. In its report of last year, the Treasury Committee blamed Barclays bosses for "disgraceful" behaviour, which damaged the UK's reputation, but was also critical of regulators.
The Libor scandal emerged in June last year when UK and US authorities fined Barclays £290m for fixing a key inter-bank interest rate.
Since then, Swiss bank UBS and Royal Bank of Scotland have been given fines of £940m and £390m respectively.
In its report, the Treasury Committee blamed Barclays bosses for "disgraceful" behaviour, which damaged the UK's reputation, but was also critical of regulators.
It said the Bank of England had been "naive" about the possibility of Libor manipulation during the financial crisis and had been "relatively inactive", but said the failure of the FSA to do its job and properly investigate the market rumours was far worse.It said the Bank of England had been "naive" about the possibility of Libor manipulation during the financial crisis and had been "relatively inactive", but said the failure of the FSA to do its job and properly investigate the market rumours was far worse.
It said the FSA had not identified any "weakness in compliance" at Barclays, despite conducting numerous visits.It said the FSA had not identified any "weakness in compliance" at Barclays, despite conducting numerous visits.
The FSA responded by saying it had increased the intensity of its supervision since 2008, focusing on firms' control functions and board oversight, and that its successors - the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) - would build on this new approach to supervision.The FSA responded by saying it had increased the intensity of its supervision since 2008, focusing on firms' control functions and board oversight, and that its successors - the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) - would build on this new approach to supervision.
'Share of the blame''Share of the blame'
The regulator also noted the committee's concerns that it had been two years behind US regulatory authorities in initiating its formal Libor investigations.The regulator also noted the committee's concerns that it had been two years behind US regulatory authorities in initiating its formal Libor investigations.
But it said it had been aware of and engaged with the enquiries made by US regulators in 2008 and 2009 and had assisted the CFTC from the outset of its investigation. Once evidence of potential wrongdoing emerged it took more active steps, it said.But it said it had been aware of and engaged with the enquiries made by US regulators in 2008 and 2009 and had assisted the CFTC from the outset of its investigation. Once evidence of potential wrongdoing emerged it took more active steps, it said.
The committee had also accused the FSA of taking a narrow view of its power to initiate criminal proceedings for fraudulent conduct.The committee had also accused the FSA of taking a narrow view of its power to initiate criminal proceedings for fraudulent conduct.
The watchdog denied this but said: "there may be merit in considering further the scope of the FCA's powers in the future".The watchdog denied this but said: "there may be merit in considering further the scope of the FCA's powers in the future".
Commenting on the FSA's response, the chairman of the Treasury Committee, Andrew Tyrie, said: "It is only right that the FSA has had to shoulder its share of the blame for this scandal."Commenting on the FSA's response, the chairman of the Treasury Committee, Andrew Tyrie, said: "It is only right that the FSA has had to shoulder its share of the blame for this scandal."
Since the committee's inquiry, significant steps had been taken by both banks and regulators to reform Libor and the culture and practices surrounding it, he said.Since the committee's inquiry, significant steps had been taken by both banks and regulators to reform Libor and the culture and practices surrounding it, he said.
But he added: "The Treasury Committee will consider the FSA's review into its own awareness of inappropriate Libor submissions when it is finalised. Some of the evidence we heard suggests early warning signs may have gone unheeded."But he added: "The Treasury Committee will consider the FSA's review into its own awareness of inappropriate Libor submissions when it is finalised. Some of the evidence we heard suggests early warning signs may have gone unheeded."