by Kyle Colona on August 6, 2012
The Financial Services Authority is set to begin reviewing the rate-setting process at the center of the recent Libor manipulation mess.
This news comes as regulators in the US and Britain face mounting scrutiny for their passivity in policing benchmark rates, including Libor. Since the Barclays settlement and executive purge last month lawmakers have blamed authorities for failing to stop the rate manipulation sooner.
According to the New York Times Dealbook, the FSA inquiry will focus on whether British officials should regulate Libor and how governance of the rate can be improved. Currently, the British Bankers’ Association oversees the Libor process.
The managing director of the Financial Services Authority, Martin Wheatley reportedly said that “urgent reform” of the Libor compilation process is needed.
“Such reform may include amendments to the technical definitions used for Libor, the associated governance framework and the role of official regulation,” Wheatley said.
The results of the review are slated to be released by the end of September and this could pave the way for legislation that criminalizes rate manipulation. The European Commission, moreover, also recently said that rate manipulation should be a crime.
One would think that statutes in the UK, the US and the EU would have already been in place that made Libor and Euribor rigging a crime, especially in light of the fact that these rates determine the pricing on an estimated $700 trillion in consumer debt like adjustable rate mortgages, credit card rates, small business loans and financing for state and local governments.
While the Barclays Bank settlement is the first in what may be a number of similar deals and more executive heads will undoubtedly roll, what about the heads of the central banks who may have known about the rate manipulations as early as 2007-2008?
Perhaps it’s time for these big wheels to roll as well?
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Kyle Colona is a New York-based freelance writer and a Feature Writer for CompliancEX and the Wall Street Job Report. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications. You can find him on linkedin.