EU watchdog to protect consumers after Libor rigging

LONDON Wed Sep 19, 2012 1:18pm EDT

LONDON (Reuters) - Europe's banking watchdog is stepping in to strengthen consumer protection after the rigging of Libor interest rates and mis-selling of financial products.

The European Banking Authority said new rules were urgently needed for home loans and other products given mis-selling scandals, poor compliance with anti-money laundering rules, and the manipulation by Barclays (BARC.L) of the London Interbank Offered Rate (Libor) used to help price some consumer loans.

"We are now working at a much higher speed in these areas and envisage issuing important guidelines in the area of mortgage lending - on responsible lending and on arrears management," EBA Chairman Andrea Enria told the European Parliament's economic affairs committee on Wednesday.

"Reviews of the risks for consumers and banks from financial innovations such as exchange traded funds, contracts for differences and structured products are also being finalized."

His warning underscored how EU-level regulators are moving beyond wholesale markets to include consumer protection which has been the preserve of national authorities.

Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), told the committee he was considering new rules on how banks approve new products.

Banks need to change how they see and treat customers and not just see them as business opportunities, he said. The sale of complex products to retail customers without advice also needed to be reconsidered.

LIBOR GUIDELINES

ESMA has powers to ban products but is keen to avoid harmful products reaching consumers in the first place.

On Monday it gave banks until the second quarter of next year to scrap bonuses and other remuneration that encourage sales staff to push products that are unsuitable.

Maijoor told the lawmakers that ESMA has just issued its second investor warning since it was set up in January 2011 to warn about the pitfalls of using the Internet for investing.

The EBA and ESMA will also review how Libor and its European equivalent Euribor are compiled using submissions from banks, Maijoor said.

They will flesh out by January a set of principles to guide banks on how they should set market benchmarks in a supervised and transparent way that deals with conflicts of interest.

The EBA will coordinate the national probes into possible Euribor manipulation and review the role of the European Banking Federation in Euribor setting.

"This will be a high-level review, covering in particular the rate setting system and the submission process," ESMA said.

The work by the two watchdogs will feed into the European Commission's study of benchmarks like Libor and Euribor and how to restore market trust in how they are set.

(Reporting by Huw Jones, editing by William Hardy)