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Interest rate riggers to face jail time

Tuesday, October 09 17:13:01

Traders who try to rig the Libor benchmark interest rate, stock indexes or oil prices would be sent to jail for a minimum of five years under rules backed overwhelmingly by an influential European Parliament committee today.

The updating of EU market abuse rules was proposed last year but news in June of Barclays' record 290 million pounds fine for rigging the London Interbank Offered Rate, or Libor, prompted lawmakers to include extra provisions for benchmark rates.

The assembly's economic affairs committee voted by 39 to 1 to specify that insider dealing or manipulation of benchmarks such as Libor is illegal.

"It was a massive failing that we weren't able to prosecute some of these traders personally in the Libor case, because we don't have the law to cover it. That will change after today's vote," said Arlene McCarthy, the British centre-left lawmaker steering the changes through parliament.

The UK Financial Services Authority had to fine Barclays for breaches of its general principles as Libor does not come under the EU's current market abuse rules.

The revised EU law will make rigging or attempted rigging of a wide range of markets and benchmarks, not just Libor, a criminal offence.

These include interest rates, currencies, inter bank offered rates, indexes and other types of financial instruments, as well as the EU's carbon market and commodities benchmarks including gold, cocoa and Brent crude.

The revised rules would give enforcement authorities much wider discretion than under the current system as they also make attempts to manipulate markets an offence, regardless of the outcome.

Michael McKee, a partner at DLA Piper, a law firm, said such wider powers could mean regulators become too powerful, although courts will expect a high standard of proof in criminal cases.

"As a lawyer I do think there is an excessive amount of discretion here, but as a matter of practice, there is no tolerance from the general public, never mind governments and regulators, for manipulation and the industry will just have to get used to it," McKee said. (C ) Reuters