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Internal FSA review finds failings over Libor

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The FSA’s internal audit into its handling of the Libor rigging scandal has found it should have been more “inquiring and challenging” towards banks and must change its culture and processes in response.

The report looked at whether the regulator could have spotted problems earlier during the period from January 2007 to May 2009.

This period focuses on the so-called lowballing of rates when banks over-stated their financial strength during the crisis. Barclays claimss there were 13 instances of communication between the bank and regulator over lowballing, prompting the review.

The audit found “many” communications that indicated Libor disclocation but accepted the FSA was focussed on market dysfunction in the wake of the financial crash.

It searched 17 million records, reviewed 97,000 documents in detail, and interviewed 20 FSA employees or ex-employees. The report identified 26 documents providing a direct reference to lowballing or a reference that could, in the internal audit’s judgement, have been interpreted as such.

The two clearest indications relating to a specific firm were the telephone calls from Barclays in March and April 2008, which were included in the FSA’s final notice on Barclays published on 27 June 2012.

The report makes six key recommendations to implement including improved information management, escalation of information, record-keeping, monitoring of non-regulated activity, clear responsibility for Libor regulation under the new regime and improved culture at the regulator.

In the past year, the FSA has fined Barclays, UBS and the Royal Bank of Scotland over Libor-rigging.

FSA chairman Lord Turner says: “There are important lessons to be learnt about effective handling of information. These are identified in the report and will be taken forward by both the FCA and PRA management.

“A particularly important lesson is the need to have staff focused on conduct issues even when the world rightly assumes that the biggest immediate concerns are prudential; and vice versa. The new ‘twin peaks’ model of regulation will deliver this.”

Turner says the scandal raises questions about how best to supervise firms, suggesting a greater focus on whistleblowers, accountability of senior management and intense self-reporting of suspicious activity.

Libor submission and administration will be regulated activities from 1 April and the FSA, together with the new Libor administrator, will agree appropriate market monitoring and oversight.


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. The FSA should fine itself. This wouldn’t cost us anything as they’d put the money back into their own bank account but it would be symbolic of the shambles they are. The IFA community have been vocal for years about how they were letting the banks get away with blue murder but they’ve now decided they should have been more “inquiring and challenging” towards banks and must change its culture and processes in response. Ye gods, they even knighted the man who was in charge of this sorry excuse for a regulator. Twin peaks model of regulation aka Sodom and Gomorrah from this day hence forth.

  2. Roman Duzinkewycz 5th March 2013 at 12:17 pm

    We are all being treated like fools – ‘more inquiring and challenging’? I thought that was why the FSA was there? These folk are and will always be a standing joke but let’s not worry too much about it, someone will pay for it in the end eh?

  3. The FSA were too busy running up and down the country, making sure IFAs’ were attending TCF roadshows and assessments, to notice a problem with Libor.
    Nero fiddled…….
    No doubt they will require more money, more power, more bonuses to put it all right.

  4. And will anyone lose their jobs because of this – of course not.

  5. Julian Stevens 5th March 2013 at 1:25 pm

    Any fine imposed ON (not by) the FSA (on itself) could simply be by way of a compulsory offset against its total levy bill.

    For example, instead of this year’s total levy bill being £578.4m, the FSA would have to scrimp, save and struggle by on, say, a mere £558.4m.

    A taste of its own nasty medicine and long overdue.

  6. If you take this at face value the evidence speaks for itself !
    The FSA / Sants knew that a lot of IFA’s were going to go from 2007 to 2012 because of RDR, he also knew of the problems with keydata, lifemark, Arch Cru etc etc etc so the pressure was on to make sure the massive fines and levies were shared out across as many IFA as possable before the end of 2012 thats also why a lot of the final figures for the levies were just guessed (Arch Cru?)
    The banks were just left to there own devices till the FSA could catch up. Also so the top FSA staff could secure follow on jobs ?

    What will come of this outcome ? Nothing !!

    The whole thing stinks !!

    Like the old saying goes “The FSA look good from the outside but then again thats what the Christians said about the Colosseum”

  7. John Constable 5th March 2013 at 6:14 pm

    Regarding LIBOR, to paraphrase Ronald Reagan, do not trust and then verify.

    That is, assume that the relevant financial institutions will NOT behave in an honourable manner i.e. a complete inversion of the case when the ‘gentlemen’ bankers set up LIBOR in the late 1960’s, and insist that all transactions are streamed via a blackbox in each institution, to the FCA – where an algorithm will calculate LIBOR.

    No doubt the financial institutions, under such a mechanism, would still try to game the system by feeding in some ‘duff data’ but hopefully, the audit side would pick this up.

  8. Why on earth would the FSA want to have been more challenging towards the banks? That would never help any of them get £3,000,000 per year jobs with them now would it? They might even get a knighthood. Funny old country this.

    And we used to talk about our sense of fair play.

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