UK Sharpens Regulatory Teeth, Augments Legislation Curbing LIBOR Abuse

The UK’s Chancellor George has confirmed that the British government will initiate an extension of the legislation in place for

complianceThe UK’s Chancellor George Osborne has confirmed that the British government will initiate an extension of the legislation in place for the regulation of LIBOR, encompassing an additional seven benchmarks to help curb abuse.

The newest changes to existing legislation represent a continued attempt by the UK to sharpen its regulatory teeth in a bid to help prevent any such transgressions from repeating itself, whilst also properly punishing those involved in past LIBOR abuse.

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As a result, the Chancellor has mandated that individuals found guilty of manipulating LIBOR benchmarks will face up to seven years in prison. In conjunction with these measures, the UK’s Financial Conduct Authority (FCA) also announced its new methodology for examining traders’ behaviors in an effort to curb the risk of benchmark manipulation earlier this year.

As per the aforementioned announcement, the new benchmarks under consideration include:

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  • WM/Reuters 4pm London Fix, which is the dominant global foreign exchange benchmark
  • Sterling Overnight Index Average (SONIA) and the Repurchase Overnight Index
  • Average (RONIA), which both serve as reference rates for overnight index swaps ISDAFix, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions
  • London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market
  • ICE Brent index, which acts as the crude oil market’s principal financial benchmark

According to Chancellor George Osborne in a recent statement on the regulatory considerations, “The integrity of the City matters to the economy of Britain. Ensuring that the key rates that underpin financial markets here and around the world are robust, and that anyone who seeks to manipulate them is subject to the full force of the law, is an important part of our long-term economic plan.”

“That’s why the government is determined 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 added.

rp_fca_logo_full2-300x300.pngThe installment of a seven-year jail sentence also represents the augmented attention and seriousness the FCA imposes towards those involved in LIBOR abuse that has roiled the financial services industry over the past two years. This new stance is virtually lockstep with the outlook taken by regulators with regards to the FX markets, another point of contention from global organizations.

Pending the announcement of the legislation, the FCA will implement a review of draft rules – consequently, the UK are considering a legislation commencement of April 1, 2015.

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