EU to amend law to make Libor rigging illegal

LONDON Fri Jul 20, 2012 12:21pm EDT

The letter ''B'' of the signage on the Barclays headquarters is hoisted up the side of the building in London July 20, 2012. REUTERS/Simon Newman

The letter ''B'' of the signage on the Barclays headquarters is hoisted up the side of the building in London July 20, 2012.

Credit: Reuters/Simon Newman

LONDON (Reuters) - Manipulating market benchmarks in the European Union would be illegal under a draft law being proposed next week after Barclays' (BARC.L) admission of rigging the London-based Libor rate, the EU's executive body said on Friday.

The European Commission said it would extend its draft law on tackling market abuses which is currently awaiting approval from the European Parliament and member states.

"Next Wednesday the Commission will adopt amended proposals on insider dealing and market manipulation, to include specific provisions prohibiting the manipulation of market-based benchmarks, and to make such manipulation a criminal offence," Commission spokeswoman Pia Ahrenkilde Hansen told a regular briefing in Brussels.

EU commissioners Viviane Reding, in charge of justice, and Michel Barnier, who oversees financial regulation, will present the amendments on Wednesday to impose criminal penalties on manipulation.

Recent scandals have raised concerns about manipulation of important market benchmarks, including Libor or London interbank offered rate and its European counterpart Euribor, and the existing draft law does not fully prohibit this, the Commission spokeswoman said.

Barclays paid a $453 million penalty as the first of what is expected to be several banks to settle with U.S. and UK regulators for rigging Libor, a benchmark for over $500 trillion in contracts.

Britain's Financial Services Authority (FSA) fined Barclays for a breach of its principles as Libor is not a recognized financial instrument under EU law, the requirement that must be met for criminal prosecutions.

Arlene McCarthy, a British center-left lawmaker who is steering the draft law through the European Parliament, said there was cross-party support for such changes which have already been discussed informally.

Britain was also keen to push ahead.

"I am hoping we can vote in September, I don't want to lose any momentum for this," McCarthy said.

She was just back from Washington where she discussed Libor with Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, the first watchdog to start a probe into Libor rigging.

The U.S. authorities levied most of the fines against Barclays.

"We spent a bit of time on how they are able to take criminal prosecutions and how to tighten our rules in a way that is equivalent," McCarthy said.

She said the European Parliament will also hold a hearing on Libor and the EU competition probe into possible manipulation of Euribor.

"We will call the banks and regulators," she said, declining to elaborate.

A separate reform of EU securities rules, known as MiFID II, may also widen the definition of financial instruments to include market benchmarks and indices, McCarthy said.

Thomson Reuters Corp (TRI.TO) is the British Bankers' Association's (BBA) official agent for the daily calculation and publishing of Libor. The company said it continues to support the BBA in calculating and distributing Libor rates.

(Additional reporting by Rex Merrifield in Brussels; Editing by Mark Potter)

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