Exclusive: Top Tories dragged into banking scandal
Cameron allies linked to City firms under scrutiny over interest rate fixing
Senior Tories were dragged into the interest rate-fixing scandal last night as fresh evidence emerged that the banking industry denied there were any problems with "the integrity" of Libor five years ago.
The Independent on Sunday has learnt that the Conservative deputy chairman, Michael Fallon, is a board member of a leading brokerage firm that dominates the rates market and which has been asked to co-operate with the Financial Services Authority's investigation into malpractice across the City.
Mr Fallon is a close ally of David Cameron and a senior member of the Treasury select committee that will question the Barclays chief executive, Bob Diamond, this week, prompting demands from Labour that he should declare an interest. The Prime Minister continues to resist calls from Ed Miliband for a Leveson-style inquiry into rate-fixing.
The Government is to set up an "urgent independent review" into Libor (the London inter-bank lending rate), but Labour continued to press for a judge-led inquiry. The review will consider the future operation of the Libor rate and the possibility of introducing criminal sanctions, a Treasury source said.
Class-action lawsuits are being filed in the US by plaintiffs that held financial products that depended on Libor. Any lawsuits that arise are likely to dwarf the fines that Barclays has already paid, perhaps running into the tens of billions across the industry.
The IoS can also reveal that the Bank of England was aware of concerns over Libor five years ago, and discussed it in at least two meetings with representatives of some of the City's biggest financial institutions.
Mr Fallon, the MP for Sevenoaks, has been a director of interdealer broker Tullett Prebon since 2006, standing down in 2010 when he ran unsuccessfully for chairman of the select committee, before being reappointed that year. Tullett Prebon is not under full investigation by the FSA into manipulation of Libor but has responded to "requests for information". A City source close to the investigation said it was "extremely unlikely Tullett Prebon would not be investigated" at some point, and sources at the firm, asked if employees could have engaged in wrongdoing, said they could "never say never". There is no suggestion of wrongdoing on the part of Mr Fallon or the company.
In a statement the firm said: "Tullett Prebon, like probably all firms in the City, has been responding to requests for information from the regulators. To date, we have had no cause to suspend or otherwise discipline any employee in connection with this inquiry."
Labour said the Tory deputy chairman had "serious questions" to answer over his role at the firm, given his key role in Parliament's inquiry into the rate-fixing scandal, which is thought to extend far beyond the wrongdoing at Barclays.
Labour MP Simon Danczuk said: "Across the banks there are serious questions about who knew what and when and that must include the deputy chair of the Conservative Party. We have to get to the bottom of the Libor fixing scandal, and the Government must also agree to calls by Ed Miliband and Ed Balls for a proper independent inquiry into the culture of banking."
The questions over the role of Mr Fallon followed the revelation that one of the Prime Minister's closest advisers, the former Tory party treasurer Michael Spencer, is under scrutiny by the FSA. Mr Spencer's brokerage firm ICAP is one of a number of institutions alleged to have helped to manipulate bank interest rates while he was treasurer of the Conservatives. Mr Cameron said yesterday that he needed to "think this through carefully" whether there should be a judge-led inquiry into the Libor scandal. Mr Fallon and Mr Spencer are not the only Tories with close links to the City, prompting concerns that the party is not enforcing tough action against the banking industry. Francis Maude, the Cabinet Office minister, was paid by Barclays to sit on its Asia-Pacific advisory committee between 2005 and 2009. A spokesman for Mr Maude said last night the minister was "absolutely not" aware of any wrongdoing at Barclays and that the committee met "three times over a couple of years", was purely advisory and had no executive function. Mr Fallon declined to comment.
Court documents filed in the US accuse Bank of England officials of failing to act on questions about "the integrity of Libor" raised during meetings of the Money Markets Liaison Group as early as 2007. The meeting was chaired by the BoE deputy governor, Paul Tucker, and attended by officials from institutions including at least seven that have since been named in Libor investigations.
The British Bankers Association assured group members of its "quality control measures", and said that "they speak to contributing banks regularly". The decision not to investigate further effectively enabled British bankers to go unchecked for more than a year. The FSA finally joined the investigation into Libor manipulation in October 2009, after other countries had already launched their own inquiries.
A Bank spokesman said last night it was "nonsense" to suggest it had been aware of any Libor-fixing in 2007 or 2008.
The Conservative connection
Mr Fallon is deputy chairman of the Conservative Party. A close ally of David Cameron and a reliable defender of the Government on the airwaves, the 60-year-old is a board member of Tullett Prebon Plc, a leading brokerage firm that dominates the rates market and which is being asked to co-operate with FSA inquiries. He resigned his directorship in the days after the coalition was formed, but was reappointed in September 2010. He receives a quarterly fee of almost £7,000 for 20 hours' work.
In a statement to the Commons on Thursday, the Chancellor of the Exchequer described the Libor scandal as a "shocking indictment of the culture at banks like Barclays in the run-up to the financial crisis". But at the time that brokers were swilling Bollinger and fixing rates, Mr Osborne was trying to convince the City that he was not some callow newcomer but a chancellor in-waiting. In 2007, bruised by hostile briefings that he wasn't up to the job, he made strenuous efforts to court the City, through the Conservative City Circle. This week he condemned his opposite number, Ed Balls, for failing to regulate the banks, but in 2007 he backed a Tory policy report written by John Redwood which called for deregulation of the mortgage market.
Mr Spencer is a former treasurer of the Conservative Party. The 57-year-old, a close friend of David Cameron, is head of ICAP, a brokerage firm alleged to have helped manipulate bank interest rates while he was also Tory party treasurer from 2006 until October 2010. ICAP is being investigated by regulators over claims the Libor lending rates were rigged. He remains chairman of the Conservative Foundation, a body launched in 2009 for the party to receive legacies free of inheritance tax. He was among a list of party donors to have enjoyed "kitchen suppers" in the PM's Downing Street flat.
The Cabinet Office minister is a key Tory moderniser. He was a member of Barclays' Asia-Pacific Advisory Committee for much of the boom from 2005. In an entry in the Register of Members' Interests, he said: "My duties were to attend committee and other meetings by phone or in person; other advice and consultation by e-mail." He received payment of £9,230.23 after tax for 15 hours' work in 2009, and resigned at the end of that year. He joined the coalition government in May 2010.
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