The UK was embarrassingly late to the Libor scandal.
The Financial Services Authority, then the regulator, and the Serious Fraud Office were left red-faced when counterparts in the US alighted on the widespread manipulation of the benchmark lending rates, used by banks around the world.
Why on earth had no one in London been monitoring this process? It was, after all, supposed to be the London Inter-bank Offered Rate. It was the US Commodity Futures Trading Commission which first took seriously the swirling rumours of a rate-fixing conspiracy.
Its investigation then brought in the US Department of Justice and, in Britain, the FSA, resulting in a series of fines on banks — the heaviest of which were imposed by the US commission. Believing the initiative to be with the US, the Department of Justice followed in December last year with criminal charges against Tom Hayes, a former UBS and Citigroup trader. Again the Brits appeared to be way off the pace.
Meanwhile, there has been talk on the international stage of the process to set global interest rates being wrestled away from "light-touch London". That would be a major blow for the City.
The Financial Services Authority had approached the Serious Fraud Office two years ago about pursuing a criminal inquiry into Libor, but Richard Alderman, the SFO's previous director, had said no, blaming a lack of resources. His tenure was littered with mistakes, and he was criticised too for this Libor decision. But it should be remembered that, at that time, the significance of the scandal was not widely appreciated. Most observers regarded it as a regulatory, rather than criminal, matter. Meanwhile the SFO's budget was being cut by a third.
It was not until Barclays became the first bank to receive a major fine – leading to the ousting of chief executive Bob Diamond – that the scandal burst on to the newspaper front pages and its severity dawned.
Realising the City's integrity was in peril, George Osborne let it be known he would provide additional SFO funding to ensure a thorough investigation into Libor. Separately, he has accepted recommendations that supervision of rate setting be passed to a formal regulator.
The decision by the SFO to ignore the actions of fleet-footed US counterparts and press ahead on Tuesday with their own charges against Hayes speaks volumes. David Green, the director of the SFO, knows he has the full backing of government as he signals a determination to take the lead on prosecutions of Libor-related offences. The Department of Justice will now have to wait in line – if it decides to continue its pursuit of Hayes.
Finally, you might think news that he is facing criminal charges on both sides of the Atlantic would be a major blow for 33-year-old Hayes. But not necessarily so. British white-collar defendants facing the prospect of a US trial and, if convicted, US-length sentences, frequently fight tooth and nail to avoid extradition, sometimes begging the British authorities to charge them instead.
The facts in no case are the same, of course, but the conviction rates in the US are much higher and the sentences much longer. Ironically, charges by the SFO may be the best news Hayes has had in a long time.
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image: © Lisamarie Babik