The Financial Services Authority watchdog yesterday declared Barclays' record fine for rigging Libor should be a "watershed" moment for the banks.
Tracey McDermott, acting head of enforcement, said the financial services industry must see the shocking details of the scandal, combined with the mis-selling of interest rate swaps, as a confluence of events that should motivate them to clean up the way they do business and restore public trust.
In a conference for financial services executives, she declared the scandals reinforced the stereotype of an industry that cannot be trusted to serve its customers. "Instead it sells products to the wrong people at the wrong time in the wrong way."
The FSA levied a record fine on Barclays for its role in the Libor scandal, but Ms McDermott said fear of the regulator should not be the only reason banks bring themselves into line.
"To change things in the future, to restore that trust and confidence, requires tough action from the regulator, but it's not our job alone. Perhaps the reaction to the penalty imposed last week on Barclays will be a watershed moment, the point when the industry realises that it also has to rise to the challenge and to recognise that things have to change."
Describing how "wave after wave of mis-selling scandals" had destroyed the reputation of financial firms meant the role of regulators had to be rethought and be far more aggressive in punishing transgressors. "We need to have a low tolerance for firms that constantly bump along the bottom. We will be much more prepared to intervene and limit business," she said.
The FSA is being scrapped next year with enforcement being handled by the new Financial Conduct Authority, run by Martin Wheatley, who, it emerged last night, will also be heading the Government's inquiry into the Libor fixing scandal.
Mr Wheatley attacked those in the industry who have deplored the idea of tougher regulation, saying consumers needed to be protected from the industry's bad behaviour: "We hear critics say we are moving too much towards a nanny state and absolve consumers from their own responsibilities. It's quite clear from our perspective that is not what we are doing."