Martin Wheatley, UK Financial Services Authority Managing Director, recommends three specific regulatory changes to restore credibility to LIBOR. First, the submission and administration of LIBOR should become regulated by the Financial Services Authority. Second, the key individuals in these processes should be FSA approved persons; and, third, he government should amend the Financial Services and Markets Act to allow the FSA to prosecute manipulation or attempted manipulation of LIBOR.
In his view, bringing the submission and administration of LIBOR under the FSA’s regulatory umbrella will enhance the FSA’s ability to put in place rules that set out requirements on firms to ensure the integrity of the submission process and allow the FSA to supervise the conduct of firms and individuals involved in the process. Importantly, it will also enable the FSA to take regulatory action against firms and approved persons in relation to misconduct, including public censure and financial penalties. Many of the problems we have seen are down to the behaviour of individuals, said Mr. Whaetley, and these powers will allow the FSA to approve key individuals for these roles, ensuring that they are fit and proper to perform the job, something which is clearly lacking in the present system.
As part of this process, the recommendation is to amend the Financial Services and Markets Act to include, as an offense, the making of a false or misleading statement in order to manipulate LIBOR. This would enable the FSA to use criminal powers for the worst cases of attempted manipulation. These powers to take action against wrongdoers will be in addition to the powers under the new European market abuse regime. The European Commission has acted quickly to amend this new regime so that it will apply to manipulation of benchmarks. The senior FSA official urged the UK government to continue to assist in finalizing the new Market Abuse Regulation, which will apply across Europe, and bring another level of protection against manipulation.