Major banks and brokers have failed to make sufficient internal changes following the Libor and foreign exchange rigging scandals, according to the City regulator.
The Financial Conduct Authority also warned that more action was needed to restore trust in the financial markets after visiting 12 firms and brokers as a follow-up exercise to the fines imposed for rigging Libor, the benchmark exchange rate. The FCA found that none of them had made all the changes required to comply with guidelines for setting prices.
“Overall, the progress to improve oversight and controls around benchmark activities across most firms and within individual firms appeared slow. This lack of urgency is disappointing, given the importance of benchmarks to the economy, the similarity and severity of a number of previous benchmark failures, the high level of public concern as a result of the misconduct made public and the sale of enforcement firms levied on firms,” the it said in its report.
In 2012, Barclays was fined £290m by the FCA and regulators in the US for rigging Libor. The penalty put the focus on an array of other benchmarks used to set prices, such as gold and silver, and the practices adopted by traders to fix the rates.
The FCA has levied fines of £700m on a number of firms for rigging Libor, while global penalties for rigging forex markets have topped £6bn. Experts warned more firms could be fined in the future.
Simon Morris, a financial services partner at the law firm CMS said: “Benchmark manipulation came close to shattering the City’s reputation for good, so it’s surprising that the FCA has found a lax approach in some firms to putting things right. This report is a clear wake-up call, and if things haven’t speeded up by the autumn we can expect the next round of multimillion-pound fines to commence.”
The regulator is writing to all 12 of the firms it visited and has published its findings to ensure that all City firms are able to respond its concerns.
Tracey McDermott, director of supervision at the FCA, said: “We have seen widespread historical misconduct in relation to benchmarks. It is now critical that firms act to restore trust and confidence in the system. Firms should have in place systems to manage the risks posed by benchmark activities and to address the weaknesses that have previously been identified.”
The FCA is asking firms to comply with new standards set out by the global body IOSCO (International Organisation of Securities Commissions), which has set out definitions of benchmarks and how they should operate.
The City regulator also said firms needed to think about the consequences of any decisions to stop participating in setting benchmarks as pulling out could have an impact on clients and the integrity of the market.
“The scope and pace of change was uneven across different benchmark and benchmark activities. It was disappointing that most firms had not yet taken all the appropriate steps to identify and then manage fairly and effectively relevant conflicts of interest. Some firms were still not able to identify all the benchmarks they administered, submitted data to or published,” the FCA’s on-site visits found.
This article was written by Jill Treanor, for theguardian.com on Wednesday 29th July 2015 19.44 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010