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Report flags FSA failings over Libor scandal

by Michelle Abrego on Mar 05, 2013 at 11:11

Report flags FSA failings over Libor scandal

A Financial Services Authority (FSA) internal report has flagged failings relating to the regulator's handling of the Libor scandal.

The regulator said it had identified a number of instances where information available provided some indication that Libor had been manipulated and that there were ‘important areas where the FSA should have performed better.’

The report covered the period between January 2007 to May 2009 and reviewed over 97,000 documents relating to 74 communications in detail.

Of those 74 communications, 26 have been judged as providing a direct reference to 'lowballing' or a reference that could have been interpreted as such, said the FSA.

Clear indications include telephone calls from Barclays in March and April 2009, which were documented in the FSA's final notice on Barclays published in June last year. 

The FSA has recently taken enforcement action against Barclays, UBS and Royal Bank of Scotland for failures in respect of Libor submissions.

The report concludes that the FSA’s focus was too narrow when handling Libor related information, that the likelihood of lowballing occurring should have been considered, and that the information received should have been better managed.

FSA chairman Adair Turner (pictured) said: ‘As the financial crisis developed in 2007 to 2008, the FSA’s bank supervisors were primarily focused on ensuring they understood the prudential implications of severe market dislocation. And the FSA had no formal regulatory responsibility for the Libor submission process. 

‘As a result, the FSA did not respond rapidly to clues that lowballing might be occurring. There are important lessons to be learnt about effective handling of information: these are identified in the report and will be taken forward by both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) management.’

The report questioned whether there might be other significant non-regulated activities, where wrongdoing by regulated firms in relation to those activities could pose a threat to markets or potentially cause consumer detriment and urged FCA and PRA senior management to consider how such activities would be identified and assessed.  

28 comments so far. Why not have your say?

Chris Miller

Mar 05, 2013 at 11:34

When you get consummate understatements such as 'should have performed BETTER'......

errr, looking at the evidence, the FSA didn't actually perform AT ALL.

It would have been a liitle more candid if they'd just fessed up to their abject failure, like 'men'.

The problem is, there's no punishment for this bunch of intellectual losers. They keep getting massive salaries, monster expense accounts, totally unwarranted bonuses..., all paid for from an unending money supply from us.

Billions of pounds have been bled by thebusiness community due to the the LIBOR rate fixing scandal. Where was the oversight?....err don't bother answering that.

The FSA demonstrate, time and again, they are more comfortable doing jobs like Frank the bank clerk in Dad's Army; ticking boxes and pootling about doing 'business risk' ( sucking eggs) roadshows for small IFA's than using their resources and upskilling to do the REAL work of keeping the 'big boys' up to the mark, ie the ones that can and have done the vast economic damage to this country.

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John Smyth 3

Mar 05, 2013 at 11:42

There has been nothing at which they have succeeded except hounding many good IFAs out of business, depriving many of the general public of independent advice and tilting the playing field in favour of banks.

Despite this however the men at the top and many others helped themselves to huge bonuses and were given knighthoods. This country of ours has become as corrupt at the top politically and commercially as Ireland, Italy, India, China and many third world countries.

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Fabulous Salaries Association

Mar 05, 2013 at 11:45

Arise Sir Hector!

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Fair's Fair

Mar 05, 2013 at 11:47

"there were ‘important areas where the FSA should have performed better.’"

Heads should roll - but I wouldn't hold my breath!

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Sophies Grumps

Mar 05, 2013 at 11:55

I agree with other comments. Do the FSA ever have to face huge fines or be put out of business. Is it not time that the regulator had staff who know what they are doing.

Sorry another bout of common sense has hit me. Hope I am not arrested!!!!

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Julian Stevens

Mar 05, 2013 at 12:07

Power without accountability.

Freedom to set its own agendas and priorities without accountability.

Freedom to launch grand new initiatives on the basis of patently phoney Cost:Benefit Analyses.

Freedom from having to go back to square one when the huge inaccuracy of said Cost:Benefit Analyses are exposed.

Freedom to spend its budget in any way it pleases, e.g. £1m on stationery in 2010!!

Freedom to direct a totally disproportionate amount of its regulatory firepower at the guys who pose the smallest risk of consumer detriment.

Freedom to hide behind the handy badge of "collective" failure when things go catastrophically wrong, so that no individuals are ever held to account (unless your name happens to be Clive Briault, in which you get a massive golden parachute with OPM).

Freedom from any sort of adherence to the Statutory Code of Practice for Regulators.

In fact, freedom to act like some unbridled monster trampling roughshod over anything and anyone that dares to try to stand in its way.

It could be the foundation of a Franz Kafka novel.

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JM Keynes

Mar 05, 2013 at 12:25

I agree totally with the other comments - but where is the accountability?

The FSA does not appear to have to answer to anyone. In a situation like this injustices will only become worse - the FSA needs to be accountable for its failings.

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Hickky

Mar 05, 2013 at 12:25

What ever made anyone think the FSA even knew what LIBOR is, and how it is calculated? That requires people who had experience of operations, and a bunch of failed accountants do not. If the new FCA does not employ persons with direct, recent experience from all the sectors it regulates, then it cannot regulate properly. The last people they want is other barrack room lawyers such as compliance officers. They need the people who know the scams, the ways of describing things to their own benefit and the people who know how to buy-pass the regulations for their own gain.

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Philip Stevenson

Mar 05, 2013 at 12:35

The RBS supervision team, which was combined with Barclays’ supervision team in 2007, was only comprised of seven team members during RBS’s failure in October 2008, which is less than a third of its size of 23 members in June 2011.

The regulator’s report into it's own failings said while the FSA was ‘largely doing what was expected of it’ the supervision teams overlooking high-risk firms were seriously under resourced compared to what the FSA now considers to be appropriate.

The FSA addresses that these decisions were a reflection of the ‘light touch’ regulation to make London more financially competitive, as encouraged by then Chancellor Gordon Brown.

And that is why no heads will ever roll over this, there aren't any heads and if they can be identified they can always blame gordon Brooooon

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Chris Miller

Mar 05, 2013 at 12:39

@John Smyth3

I think we need to include Zimbabwe too!

That reminds me, my palms feel a bit dry..... anyone got a bity of grease about them?

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Ian T Coley

Mar 05, 2013 at 12:57

I look forward to reading........

"The FSA has today handed itself a fine of £170 million and announced that as a result of the sterling work carried out by the investigating team - each member of the team is to receive a £1.3 million bonus"

When asked about the number of people involved in the case, an FSA spokesman said...

"It was a substantial piece of undercover work involving the majority of senior level employees, totalling somewhere between 120 and 130 individuals over a period of three weeks. This is a great example of the regulatory regime in action, proving that the system really does work"

Ian Coley

Partner

Medical Investment Services

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Knowledgable insider

Mar 05, 2013 at 13:12

This Government was more than aware of the shortcomings of this incompetant lot before the last election and chose to do nothing much to the surpise of Hector as he quickly withdrew his resignation. If you want to blame anybody look to the two idiots running the country. I have been a life long supporter of the Tories but am quickly beginning to belive that what they are now isnt to my taste. Having seen what they allow in their name at first hand I now see that theyre labour party mark 2 with Cameron acting as Blair mark 2. Cutting red tape? thats a laugh isnt it ...if you speak to other undustries you will find out that what we are suffering is common elswhere. Dont blame the FSA as they are only doing what they are allowed to do as in any other Government Department ...the buck stops with this Government!!

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JHA

Mar 05, 2013 at 13:18

"And the FSA had no formal regulatory responsibility for the Libor submission process".

OK...well that is alright then!

So what exactly do they have formal regulatory responsibility for in supervising what goes on in the UK banking industry?

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Jonathan Kirby

Mar 05, 2013 at 13:19

I get a vision of Canary Wharf being like Grace Brothers of Are You Being Served fame.

No matter what goes on, whoever is in charge will be just like Young Mr Grace, telling everyone:

"You've all done very, very well".

Hang on, wasn't what the TSC said when they gave Hector a 'grilling' over one of his other many cock-ups?

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Hickky

Mar 05, 2013 at 13:26

Just be pleased that the FSA has 26 days left. Mind you, will April 1st provide the next set of Jokers or will we begin to see some sense of proportion being applied?

Anyone making a book?

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Michael Brown

Mar 05, 2013 at 13:34

@JHA

"And the FSA had no formal regulatory responsibility for the Libor submission process". Yes.

Now if we used the excuse with regards to KeyData, Arch Cru etc what would be the outcome. "Tarred and feathered". You should have known this and not believe the documentatio etc.

Total disgrace!

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Ian Lees

Mar 05, 2013 at 14:19

Sir Hector Sants was not responsible for his failings at the FSA - like Sir David Nicholson at the NHS, and his "death camps". This is another case of bolting the stable door after the horse had bolted . . . . but it appears that in this case not only had the horse bolted, it had been caught slaughtered and was embedded and sold in Tesco's burgers, findus 's meatballs and Ikeas sweedish meat balls - becasue they were cheap meat, undisclosed to consumers - and no Corporate Governance formthe Company, the regulator FSA ( Financial Services Authority and Food Standard Agency ) both equally incompetent, and a Governemtn which does not listen does not care - and David Cameron refuses to take his duties as Prime Minister seriously . I wonde how many meals these knighted cowboys had at camerons ? and if they had Beef Burgers avec Horse - ? ? ??

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James Clancy

Mar 05, 2013 at 14:24

"The Peter Principle, comes to mind here

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John Smyth 3

Mar 05, 2013 at 14:28

@ Hickky

Your optimism is ill founded.

There will only be a few new faces and a lot of additional ones but the bulk of them will be the same old people and the same old modus operandi .

To do whatever the banks placemen/women instruct them to do. As one previous contributor has already asserted Dave and George are doing exactly the same as Gordon and Alistair did. Letting the banks and city do whatever they lobby them to do.

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Des Pondent

Mar 05, 2013 at 14:29

....the collapse of Northern Rock, RBS's flawed takeover of ABN AMRO, widespread PPI misselling, LIBOR fixing, ossmeat in burgers ....the list seems endless.

In all fairness, how can our regulator be expected to police the important stuff when they're oh so very busy waving their big sticks at advisers and dictating on how we shouldn't be paid. So well done to Lord Turner Hector, Margaret, Martin et all. Top work guys!

"Please Sir I want some more"

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DG

Mar 05, 2013 at 14:33

@ Michael Brown – too right!

“The regulator said it had identified a number of instances where information available provided some indication that Libor had been manipulated and that there were ‘important areas where the FSA should have performed better.”

Comparing this inaction to the damning verdict the FSA came to regarding the ability of a “reasonably competent adviser” to have realised Arch Cru was just smoke and mirrors (despite being fully authorised and “overseen” by Capita) and surely we should expect any reasonably competent regulator to have acted pre-emptively in light of these “indicators” that LIBOR was being manipulated.

But no. The FSA does not apply any consistency to their arguments and is about to forge ahead, next month, in their quest to many drive advisers and their employees out of business and into bankruptcy. They have the luxury of saying they’ve “identified important lessons” and they’ll “be taken forward by the FCA”. No such luck for the advisers who DIDN’T have any indication that large, regulated firms were acting way beyond their remit and competence.

Personal repercussions? - Look at Sants and Turner. They clearly believe they deserve far better treatment than the poor schmucks they pound into the ground on the one hand whilst using the same argument to merely reflect that they’ve learnt something for the future.

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Barman

Mar 05, 2013 at 14:33

Setting Libor is not a regulated activity...

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JHA

Mar 05, 2013 at 15:01

Is not regulating the activities of banks one of their duties/ responsibilities?

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Julian Stevens

Mar 05, 2013 at 15:24

There's no question as to whether or not the FSA is supposed to have been responsible for regulating the banks and that must surely extend to ensuring that the banks were not manipulating the LIBOR (which is not the same as regulating the setting of the LIBOR itself).

The questions that have never been answered, though (like so many others about the FSA) WHY the FSA failed to regulate the activities of those in a position to manipulate the LIBOR. Was it because:-

1. The Treasury instructed the FSA to look the other way and just let the banks get on with it, because they're a central driving force of the UK economy and it was assumed that they could be trusted to adhere to their own systems of checks and balances? Or

2. Cronyism between the senior people at the FSA and the banks? Or

3. Inadequate resources and expertise to undertake the task at hand? If this, then the senior people at the FSA, not least Hector Sants and Adair Turner, must have realised it and yet failed to speak out. Or

4. Sheer incompetence and/or deliberate misprioritisation? Or

5. All of the above?

Thoughts anyone?

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John Smyth 3

Mar 05, 2013 at 16:00

@ Julian Stevens

You only have to look at who is employing Sants now at £3m a year to answer what was going on. Everything he did was delibrate to profit the banks.

They were only ever fined small amounts and then only when the financial smoke and mirrors were blown away in 2008 and the clamour against them became so loud they could not ignore it. Remember how many years their malpractices were let go on for.

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Adam Smith

Mar 05, 2013 at 16:03

6. Like Barman said, it's not a regulated activity (though that changes on 1 April 2013).

The FSMA Regulated Activities Order 2001 sets out what is regulated business and what isn't and, if it's not in the Order, it's not in the FSA's jurisdiction. Other notable omissions include BTL mortgages.

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Anitaki

Mar 05, 2013 at 17:33

Yes BTL mortgages, pension GARs lost for access to "wider choice of funds", unregulated investments sold by regulated advisers that will be worth diddly squat when the Ponzi pyramid collapses, Payday loans at 3,000% APR, the opportunities for the FSA to clean up the industry were endless

But no. They consider it far more important to write your own training plan for a sole trader.

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Jonathan Kirby

Mar 06, 2013 at 09:29

@ Julian & John Smyth 3

Sant's mindset was obvious when he talked about moving to Barclays as a 'competitor'.

His only interests are self-interest, self-advancement & self-aggrandisement.

In other words totally selfish.

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