Watchdog knew banks were fixing Libor for three years

 

The City watchdog yesterday admitted that staff had been aware of Libor fixing for nearly three years before it finally launched an investigation into what has rapidly turned into banking's biggest scandal.

Releasing the findings of an internal audit into its conduct, the Financial Services Authority said there were 26 separate occasions when the practice of banks deliberately "lowballing" their Libor submissions was raised with staff. The practice was indirectly referred to in a further 48 documents, emails or other communications. These "red flags" were raised with staff at "all levels" of the organisation.

But the audit cleared the FSA of the type of systemic failure found in relation to its supervision of Northern Rock in the run-up to the mortgage bank's collapse.

The report found that the FSA had not been aware of the more serious scandals of traders colluding to fix rates to benefit their trading positions before it launched its inquiry into Libor.

None the less, the publication drew a rebuke from Andrew Tyrie, chairman of the Treasury Select Committee, who said it showed there was something "amiss" at the watchdog. He said it "confirms the Treasury Committee's concerns that the FSA was slow to act on evidence it received relating to Libor manipulation".

The FSA originally came under pressure to act after Barclays disclosed to the committee 13 instances of communication between the bank and the regulator in which it raised the possibility of firms making inappropriate Libor submissions in order to avoid negative media comment (lowballing). Those 13 are included in the 26.

Such lowballing was a feature of Libor rates during the financial crisis. A bank's Libor submission is based on what it expects to pay to borrow from other banks. During the crisis, some banks lowered their submissions in an attempt to show they were good risks and not under pressure.

The report criticised the FSA for being "too narrowly focused" in the way it handled evidence of this and of failing to see that problems with the interest rate went beyond "structural weaknesses" in the way that they were complied, under the auspices of the British Bankers' Association.

It attacked the FSA for failing to consider the impact on either consumers or the financial markets that Libor fixing might have. It said the watchdog should have paid heed to its responsibility for overseeing banks' conduct in relation to its "principles of business" rules. It was through those rules that banks including Barclays, Royal Bank of Scotland and UBS have been heavily fined, even though Libor setting was not then a regulated activity.

Lord Turner, chairman of the FSA, said the watchdog's successor bodies must learn lessons. He added: "All of the authorities, both UK and US and elsewhere, only discovered trader manipulation [of Libor rates] as a by-product of inquiries launched into potential lowballing. This raises important issues about the regulatory tools best suited to identifying such market manipulation."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
Jeremy Clarkson
people
News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own