* UK plans to ban rigging FX, commodities and fixed income
* UK's Osborne rejects similar EU law, plans to design own
* Opting out of EU law seen making no difference in practice
* BoE to lead review, to report in one year's time
* Foreign bank branches to face tougher management rules
(Updates with full speech, adds Carney comments)
By David Milliken and Huw Jones
LONDON, June 12 British finance minister George
Osborne rejected 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.
"We will introduce tough new domestic criminal offences for
market abuse, rather than opt in to European rules we do not
think suitable or sufficient for our needs," Osborne said in a
speech to London's financial community.
The finance ministry said the new rules would be as tough,
if not tougher than the upcoming EU laws.
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.
"I am sure it's a big deal for political reasons but it
won't make any difference at all as far as the process of
prosecuting wrongdoers," said Simon Gleeson, a financial
services lawyer at Clifford Chance.
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.
Bank of England Governor Mark Carney, speaking at the same
event, backed Osborne's plans, saying they would complement
existing efforts to raise professional standards in banking and
promote the principle of "true markets".
"Seeking to manipulate, game or profit from unfair access
transgresses that principle," Carney said. "It should thus have
clear consequences, including professional ostracism."
The British Bankers' Association also 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.
Antony Jenkins, chief executive of Barclays, which
was fined for rigging Libor, said Osborne's plans will help
restore trust and confidence in a vital part of the global
MANSION HOUSE SPEECH
Osborne set out the proposals in a speech at the Lord Mayor
of London's ornate Mansion House residence, stressing the
importance of integrity in Britain's financial markets to the
economy as a whole.
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.
Some bankers worry privately that Osborne is trying to
front-run and shape a similar study into forex market practices
by the global Financial Stability Board (FSB), which is chaired
Osborne argued that UK-specific laws are not about favouring
London's financial sector - in the past 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
"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 said.
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 the FSB's report on forex, due in a few
weeks, as markets call for a common, global approach to reform.
"Regulators across the world need to coordinate as it's far
from optimal to have different regimes, as we have already seen
with EU and U.S. derivatives rules," said James Kemp, managing
director of banking lobby AFME's global FX division.
"The end result has to maintain easy access to currency
markets for users while also being safe and sound."
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.
(Additional reporting by William James; Editing by Hugh Lawson
and Catherine Evans)