Brussels, 25/07/2012 (Agence Europe) - The European Commission wants to prevent rate-fixing seen recently for the LIBOR benchmark repeating itself in the future and is therefore proposing that such rate-fixing be made a crime for which offenders can be sent to prison, as is the case in the United States. On Wednesday 25 July, it unveiled draft legislation to this end, to be added to its draft insider dealing and market abuse directive unveiled in October 2011 (see EUROPE 10476).
Unveiling the draft legislation to the media, two European commissioners used tough language in their descriptions of the people who have been rate-fixing, describing the LIBOR rate-fixing as criminal manipulation. EU Justice Commissioner Viviane Reding said: “Public confidence has taken a nose-dive with the latest scandals about serious manipulations of lending rates by banks. EU action is needed to put an end to criminal activity in the banking sector and criminal law can serve as a strong deterrent. This is why we are today proposing EU-wide rules to tackle this type of market abuse and close any regulatory loopholes. A swift agreement on these proposals will help restore much needed confidence of the public and investors in this crucial sector of the economy.”
Internal Market and Services Commissioner Michel Barnier said: “The international investigations underway into the manipulation of LIBOR have revealed yet another example of scandalous behaviour by the banks. I wanted to make sure that our legislative proposals on market abuse fully prohibit such outrages. That is why I have discussed this with the European Parliament and acted quickly to amend our proposals, to ensure that manipulation of benchmarks is clearly illegal and is subject to criminal sanctions in all countries.”
The rate-fixing scandal for the UK's bank interbank interest rate benchmark, LIBOR, and the European index EURIBOR broke out recently following revelations of rate-fixing by Barclays Bank of the UK from 2005 to 2009, when it is alleged that Barclays used estimates for interest rates it was prepared to accept for offers of finance which were different from the rates it accepted in practice, thus jeopardising the accuracy of LIBOR and EURIBOR. Reding said the scandal may well amount to gains of some €12 billion over three years, as estimated by US bank Morgan Stanley.
Alongside investigations started in the United Kingdom last year, other investigations are being carried out at EU level, in cooperation with the authorities of the US, Canada and Japan. On Wednesday, EU Competition Commissioner Joaquín Almunia said it was perfectly possible that several big banks had been colluding in the LIBOR scandal, but would not give any details.
Further action. Michel Barnier said that the Commission and European Parliament took a similar approach to this scandal. In the autumn, the EU Council of Ministers and the European Parliament will be examining the draft legislation unveiled by the Commission. Barnier said further action would be needed and he is examining how to supervise or regulate all players producing benchmarks, whether of bank rates or raw materials prices. Like for credit rating agencies, the idea is to force players to be open about their methodology because benchmarks sometimes include both subjective and objective factors. All options are on the table, said Barnier, except self-regulation. European central bank heads will be meeting in Frankfurt in September to examine the question of rate-fixing with the aim of unveiling proposals before the end of the year. (MB/transl.fl)