Europe to jail interest rate riggers

European commissioners set to make market manipulation a criminal offence

The European Commission is set to make interest rate-rigging a criminal act in the wake of the Libor scandal.

In amendments to the Market Abuse Directive to be announced on Wednesday, it is expected that the Commission President, Jose Manuel Barroso, and financial services commissioner, Michel Barnier, will ensure that anyone caught rate-rigging will be jailed.

There has been frustration that the UK's Financial Services Authority and the Serious Fraud Office have appeared toothless over the Libor manipulation, which helped Barclays traders hide losses and improve their financial positions. Thus far, only Barclays has been fined, £291m, though FSA chairman Lord Turner is preparing a hard-hitting speech attacking the City's debased culture on Tuesday.

The European Parliament is also tabling amendments that will focus on making Libor and other potential areas for rigging, such as currency trading, criminal acts. Separately, the commission might also look into whether rate-rigging counted as cartel activity.

Arlene McCarthy, a Labour MEP and the vice-chairman of the commission's powerful economic and monetary affairs committee, said: "We're extending the scope of the directive and making Libor-rigging illegal. But I want this future-proofed so that it doesn't just cover Libor."

However, the chances of an international settlement of the Libor scandal have been dismissed as "minimal" as Britain's banks get ready to report billions of pounds in profits.

Banks have been taken by surprise at the outrage sparked by the scandal leading to talk of a mass settlement to provide them with cover and help them to avoid the sort of crisis that engulfed Barclays – the first to settle. But sources close to discussions between the banks and the regulators have said such a deal would be "almost impossible" given the legal complexities and the international nature of the investigations. That leaves the remaining banks desperate to avoid being next in line.

Lloyds kicks off the banks' interim results reporting season on Thursday and is expected to post underlying pre-tax profit of nearly £1.3bn. However, "statutory profit", which includes movement in the bank's own debt, will likely be just under £500m.

Barclays, reporting on Friday, is expected to make underlying profit of £4.2bn before tax with statutory profit at around £1.3bn. The bank lost chief executive Bob Diamond as a result of the scandal and analysts are expected to push chairman Marcus Agius to update on the search for a successor.

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