* UK plans to ban rigging FX, commodities and fixed income
* UK's Osborne rejects similar EU law, plans to design own
* BoE to lead review, to report in one year's time
* Foreign bank branches to face tougher management rules
By David Milliken
LONDON, June 11 British finance minister George
Osborne will reject European Union plans to outlaw currency
market manipulation on Thursday and instead set out his own
proposals to make rigging exchange rates a criminal offence.
EU laws taking effect in 2016 will make it a criminal
offence with a four-year jail term to rig key prices in a wide
range of financial markets.
But Osborne does not want these laws to apply in London, the
world's biggest centre for currency trading.
Instead, he wants a panel led by the Bank of England to
recommend new criminal sanctions which meet the needs of London,
where much of the loosely regulated $5-trillion-a-day trade in
foreign exchange takes place.
Britain has already introduced a maximum seven-year jail
term for trying to manipulate the LIBOR interbank interest rate,
and plans to introduce similar criminal penalties for rigging
benchmarks in currency, commodity and fixed income markets.
"Our own rules will be as strong or stronger than those of
the EU, but will preserve flexibility to reflect specific
circumstances in the UK's globally important financial sector,"
Britain's finance ministry said in a statement late on
The opposition Labour Party said Osborne was acting too late
to root out malpractice, and critics are likely to warn that the
new legislation will be excessively influenced by Britain's
But rejecting EU proposals may please lawmakers in Osborne's
Conservative Party who oppose transferring more powers to
Brussels. The large number of Britons who voted for the anti-EU
UK Independence Party in last month's European Parliament
election may also welcome the move.
Osborne has already clashed with the EU over laws which
limit bankers' bonuses, and Britain has the right to opt out of
EU rules that involve criminal penalties.
The British Bankers' Association welcomed the plan. "The key
task ... will be ensuring that we have a system that is robust
and punishes any wrongdoing while being sensitive to the need to
continue to attract global banks and investors to the UK," its
chief executive, Anthony Browne, said.
MANSION HOUSE SPEECH
Osborne will detail the proposals in a speech to London's
financial community on Thursday evening alongside BoE Governor
Mark Carney, and will stress the importance of integrity in
Britain's financial markets to the economy as a whole.
The move was not completely unexpected. Osborne said last
week that he wanted to boost the integrity of London's markets,
and the chief executive of the ACI umbrella group for currency
traders told Reuters new criminal sanctions were likely.
More than 40 currency dealers around the world have now been
fired or suspended following claims that traders used client
order information improperly to attempt to manipulate prices.
But no-one has been prosecuted under England's existing laws.
Osborne is expected to argue that UK-specific laws are not
about favouring London's financial sector - which in the past
has been a major source of tax revenue and economic growth - but
about ensuring rules are appropriate to a financial centre that
dwarfs those in most of continental Europe.
"I am going to deal with abuses, tackle the unacceptable
behaviour of the few and ensure that markets are fair for the
many who depend on them," he is expected to say at the Lord
Mayor of London's ornate Mansion House residence.
Britain's Financial Conduct Authority is investigating
allegations that there were attempts to manipulate benchmark
foreign exchange rates in London, and is only due to report back
on this early next year.
The finance ministry wants the new rules to reflect those
findings as well as a report due in a few weeks from the
international Financial Services Board chaired by Carney.
As well as criminalising benchmark price manipulation, the
proposals suggest requiring branches of foreign banks operating
in London to meet stricter rules on senior staff that are due to
apply to British banks from next year.
Under these new rules, senior staff will be directly
accountable if a bank goes bust, making it easier for regulators
to prosecute individuals than after the 2007-09 crisis.
A review of the new legislation will last a year and be led
by Minouche Shafik, a senior International Monetary Fund
official whom Osborne appointed to take up a new role as a BoE
deputy governor responsible for banking and markets.
FCA chief executive Martin Wheatley and a senior Treasury
official, Charles Roxburgh, will also be involved. Elizabeth
Corley, chief executive of Allianz Global Investors,
will represent financial industry views.
(Additional reporting by Huw Jones; Editing by Hugh Lawson)