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TSC slams FSA over role in Libor scandal

Andrew Tyrie 200

The FSA has come under severe attack from the Treasury select committee over its role in the Libor rate-rigging scandal.

In its report, Fixing Libor: some preliminary findings, published today, the TSC slams the regulator for failing to carry out adequate supervision and governance and its inability to act on information from various sources.

In June, Barclays was fined £290m by the FSA and US authorities for rigging the Libor and Euribor rates. It is thought a number of other banks including Royal Bank of Scotland, UBS and Citibank are also being investigated.

The TSC’s report criticises the FSA for not spotting the “extreme weakness” of Barclays’ internal compliance for Libor setting procedures, despite numerous visits to the firm.

The TSC is demanding the FSA reports back to it with improvements to its supervisory procedures.

It also expresses concerns that the FSA was two years behind US regulators in investigating Libor, which it says contributed to the perceived weakness of London in regulating financial markets.

FSA chairman Lord Turner says the Internal Audit Department of the FSA is now undertaking a review of how the FSA dealt with information about Libor from US regulators, the media and market rumours.

The TSC criticises the FSA’s approach to corporate governance, saying the regulator appeared content to allow former Barclays chief executive Bob Diamond to continue in the role.

Diamond resigned in July amid growing public pressure surrounding the scandal.

TSC chair Andrew Tyrie says: “Such an informal approach, as was taken in this case, is open to abuse in the future. The Prudential Regulation Authority and the Bank of England need better corporate governance. The absence of a requirement for effective governance in the new regulatory framework is a serious defect of the Financial Services Bill.”

The report contains damning criticism of Diamond, branding his evidence to the TSC as “lacking in candour and frankness” and falling well short of the standard parliament expects.

Former Barclays chief operating officer Jerry del Missier is also criticised for not querying an apparent order from Diamond to lower Libor rates after a conversation with Bank of England deputy governor Paul Tucker.

Tyrie says: “The evidence that Tucker, Diamond and del Missier separately gave about this manipulation describes a combination of circumstances which would excuse all the participants from the charge of deliberate wrongdoing. If they are all to be believed, an extraordinary, but conceivably plausible, series of miscommunications occurred.”

The TSC says Barclays’ culture was “deeply wrong” and went well beyond Libor, claiming management turned a blind eye to this culture on the trading floor.

In its report, the TSC accuses the Bank of England of naivety for not anticipating wrongdoing with regards to Libor rate-setting, or checking with the FSA whether any wrongdoing occured.

The TSC says the rate-rigging scandal displays the “dysfunctional” relationship between the Bank and the FSA at the time, to the detriment of the public.

It believes the entire culture of the banking sector is in a poor state and needs urgent reform.

The Parliamentary Commission on Banking Standards is currently reviewing the professional standards and culture of the UK banking sector.

The TSC is calling on the commission to consider how to mitigate the risk that banks’ senior management may not be challenged enough internally, which could lead to institutions committing strategic mistakes.

The committee is also urging Financial Conduct Authority chief executive designate Martin Wheatley to recommend the present criminal law of market abuse is ammended to include Libor manipulation as part of his review into Libor.

The TSC’s report highlights that seven international banks are under investigation and Barclays’ shortcomings should not be seen in isolation.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. eh but are those FSA bonus’s safe? I think so

  2. For “informal approach” read “Old Boy Network”.

  3. Does anybody from any quarter have anything good to say about the FSA? Intermediaries, MP’s, the TSC, providers, PI Insurers, networks, platform operators, the list goes on and on. Yet still the FSA blunders ever on, from one motorway pile-up to the next, complacently smug in the knowledge og its lack of any real accountability. And all the FSA’s £500,000 a year chief apologist can come up with is a bit of vague waffle about how “the Internal Audit Department of the FSA is now undertaking a review”.

    Who are the people in charge of the FSA’s internal audit department?

    Who sets the parameters of what that department is supposed to do?

    Who monitors how well (or otherwise) that department discharges its duties?

    Who is overseeing this review?

    What sanctions against any individuals are imposed for failure?

    How many of the people in that department received a share of the FSA’s £20m+ bonus pot last year and the year before?

    Is anything really set to change?

  4. ken170647 YouTube 20th August 2012 at 9:35 am

    The effete TSC also advised delaying RDR for 12 months. What’s the point of the TSC?

  5. The FSA couldn’t bite the hand that feeds them could they?
    As one door shuts, out goes Diamond , can you see a cosy number for him? you’ve guessed right at the FSA and Hector ( The Bully) straight into the BOE
    Did I hear the other day, Turner wants to be considered for Kings job at the BOE ” Bloody hell thr Chuckle Brothers in charge
    But to make the FSA look good they’ve been thinking ops sorry FSA don’t think which IFA should we give a good kicking to.
    Sorry but Democracy, Tories, FSA and Banks Putin’s Russia.

  6. Errr! What is Libor Manipulation?
    Surely Banks are permitted under the current law to negotiate between themselves as to what rate they will lend to each other. That surely must be a commercial decision.
    If LIBOR is to be under the control of organisations such as the FSA, we really are in trouble, these nut jobs couldn’t organise a party in a brewery and most of those whose responsibilities include the supervision of large institutions appear to be as much use as a knitted teapot or chocolate firerguard.

    If any nation abroad (no names no pack drill) really wanted to ruin our financial services industry they could not have put in place such an incompetent, useless regulator to do the job for them.

    As for the TSC – do they have any real power, as in anothers comments above, they recommended delaying RDR for 12 months and were immediately rebuffed by the man who is no longer in charge.

    Makes you wonder who is really responsible for the damage, the banks or the FSA for its lack of diligence and supervision.

  7. Barclays’ has been fined, and Diamond has resigned over LIBOR. FSA? No comment.
    Other banks are being investigated. FSA? No comment.
    Standard Chartered have handed over a large “donation” in respect fo money laundering. FSA? No comment.
    HSBC has been hauled over the coals in the US over money laundering for drug barons. FSA? FSA comment.
    RBS & HBOS drag the country down into economic mess. FSA? Sorry we were looking the other way.
    If Barclays can be fined £290m for their behaviour, should the FSA, and its directors, not also be fined for their non-behaviour?
    Diamond takes responsibility, just, for the LIBOR scandal. Sants just makes his excuse and leaves the dance floor, reputation untarnished, allegedly.
    The first indications of LIBOR problems were apparently being aired in 2007/8. The FSA and Barclays sit beside each other at Canary Wharf and the FSA miss all the whispers? The FSA have indicated they were unhappy with Barclays attitude to regulation and the FSA, so they miss the opportunity of a hard investigation of Barclays internal procedures? It really does smell of the “old boy network”. Or someone is being economical with the truth.
    Just how does the Government expect financial services to maintain its reputation when the body charged with that job is demonstrating the lowest level of moral integrity one can imagine. Mistakes and oversights are part of life, but one expects that a litany of such failures would have encouraged at least one senior official to “fall on their sword”. One would expect an external body to have the power to investigate the operation of the FSA. Not in the UK.
    Absolutely nothing. There is no indication of any level of remorse, or even humility. And certainly no indication of being able to learn from their mistakes. It is embarrassing to hear the decades old mantra brought out once again – we need to move away from a box ticking approach.
    What is the solution to all this? Instruct the FSA to conduct an internal investigation and give them more powers, even before the investigation has finished – because there is no one in the land that couldn’t anticipate the outcome of that investigation long before it is published.
    The only positive to come out of the process is that financial institutions will continue to base operations in the UK because there is nothing better than being supervised by a blind man. The question to ask is whether that positive benefit is for the UK or merely institutions that take advantage of our incompetence.
    Ned – The Banks are responsible for the problems that have occurred. But the whole point of regulation is that one knows that institutions will abuse their position if they believe they can get away with it, so barriers are put in the way. If you pay people to erect those barriers but they do no such thing does this not warrant questions and criticism.

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