* EU's Reding criticises Bank of England for slow response
* Regulation chief raises prospect of tighter supervision
* EU's Barnier says all options on table bar status quo
By John O'Donnell
BRUSSELS, July 25 The European Commission warned
on Wednesday that the EU could take over supervision of
benchmarks such as Libor as one of its most senior officials
unleashed a broadside at the Bank of England for its failure to
stamp out rigging.
Manipulation of Libor, which is used to set prices for
trillions of dollars of financial products around the globe, has
landed Barclays with a penalty of $453 million, claimed
the scalp of its chief executive and threatens to drag in
several other banks into the rate-fixing scandal.
Announcing measures to criminalise the fixing of such
indexes, Michel Barnier, the European commissioner in charge of
regulation, said he was examining tighter supervision of such
benchmarks and questioned their current method of calculation.
Banks currently supervise Libor and its continental European
equivalent Euribor themselves but self-regulation is set to end.
"Everything has been put on the table except one and that is
that of status quo and self regulation," Barnier told
journalists. "We will need to propose further ... methods in
relation to the ... public supervision of all reference rates
The European Banking Federation, which oversees Euribor,
said it backed public supervision as fast as possible.
Barnier made his remarks as he outlined a proposal to
criminally sanction traders and others involved in rigging an
index such as the London Interbank Offered Rate - new rules are
not set to take effect until 2015.
Viviane Reding, the EU's Justice Commissioner said such
measures were just a first step in dealing with the misconduct
of bankers, whom she compared to "corrupt casino dealers betting
with their clients' savings".
"I was not very much convinced by the action of the Bank of
England," she said, in frank remarks that Barnier declined to
repeat. "It has already got, years before, a warning that things
were going wrong. It has not acted. The Libor scandal reveals
major faults in the governance of the process."
Reding suggested the European Central Bank could become the
supervisor to "end this very cosy relationship that exists today
between some national supervisors and banks", in remarks that
are likely to anger those in Britain that wish to retain
autonomy in policing finance.
"We need rigour, independence. We need it at the European
level. We cannot continue with the casino mentality," Reding
The Bank of England, which currently is not Britain's
financial regulator, says it was unaware of any fraudulent
rigging of the rate, though they acknowledged banks had
difficulties with their estimates for Libor submissions when the
money markets froze in the 2008 financial crisis.
Barnier said he was also examining how such indexes are
The Libor rates, compiled from estimates by large banks of
how much they believe they have to pay to borrow from each
other, are used to determine interest rates on over $500
trillion in contracts around the world.
"Should we head towards a systematic approach to the way in
which these benchmarks are composed based on real facts and
figures rather than estimates?" Barnier asked.
Central bankers are calling for a fundamental changes in the
way such indexes are compiled. The European Central Bank is
privately pushing for a rethink on Euribor, sources familiar
with the matter told Reuters last week.
This could include shifting the basis of the calculation to
actual lending rates instead of the current system, which like
Libor uses banks' assessments of what they expect to be charged.
Regulators fear the existing set-up allows too
The head of Britain's financial regulator said on Tuesday
the dishonesty that was discovered in setting Libor was now in
Barnier intends to criminalise the fixing of such indexes
across all 27 countries in the European Union by amending new
legislation that lays down minimum penalties for market abuse
such as insider dealing.
Britain, whose Barclays bank was the first to be fined for
attempting to manipulate the London Interbank Offered Rate, has
called in its anti-fraud prosecutors to pursue traders involved
in the fixing scandal.
It turned to the Serious Fraud Office to launch a criminal
investigation because its watchdog, the Financial Services
Authority, does not have the power to impose such sanctions.
Had Barnier's proposed change to criminal sanctions already
been in place, it would have been easier for the FSA to
The change to the EU-wide rules means it would no longer be
possible for countries to take a softer stance on such offences.
Insider dealing is, for example, dealt with differently by
countries such as Germany, Italy and Spain.
Barnier wants to leave it up to countries to decide what
penalties they want for those found guilty of index rigging. By
criminalising it, however, he gives them a free hand to impose
Thomson Reuters Corp is the British Bankers'
Association's (BAA) official agent for the daily calculation and
publishing of Libor. The company has said it continues to
support the BBA in calculating and distributing Libor rates.