Manipulation of commodity and forex benchmark rates to become criminal offence, UK government confirms

Out-Law News | 01 Oct 2014 | 10:44 am | 1 min. read

Seven 'benchmark' rates governing foreign exchange, swaps and commodities transactions are to be brought within the regulatory regime governing the London Interbank Offered Rate (LIBOR), the UK Treasury has announced.

The Treasury is consulting on extending the new criminal market manipulation offences that apply to LIBOR to the other rates, as recommended by an ongoing review of the way that wholesale financial markets operate. The Fair and Effective Markets Review, a joint initiative by the Treasury, Bank of England and Financial Conduct Authority (FCA), is due to publish its final report in June 2015.

"The integrity of the City matters to the economy of Britain," said Andrea Leadsom, the Treasury's economic secretary.

"Ensuring that the key rates that underpin financial markets are robust, and that anyone who seeks to manipulate them is subject to the full force of the law, is vital. 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," she said.

The government and market regulators announced that they were to review the 'fairness and effectiveness' of the UK's wholesale financial markets in June. Although the review will focus on a wide range of wholesale markets, the intention is to target areas in which recent allegations of the most serious misconduct have arisen. The review is also intended to reinforce confidence in the UK as a location for wholesale financial market activity, and to influence the international debate on trading practices.

The consultation proposes extending the existing criminal offence of making false or misleading statements in relation to LIBOR to some of the main rates applying to currency, fixed income and commodity markets. These include the Sterling Overnight Index Average (SONIA) and Repurchase Overnight Index Average (RONIA), which are reference rates for overnight index swaps; the WM/Reuters 4pm London Fix, which is the dominant global foreign exchange benchmark; and ISDAFix, the principal global benchmark for swap rates.

The commodity rates that would fall within the new regime are the London Gold Fixing and LBMA Silver Price rates, which determine the price of gold and silver in the London market; and the ICE Brent futures contract, which is the world's most-traded crude oil future. As with the LIBOR offences, making false or misleading statements in relation to these rates would carry prison sentences of up to seven years and unlimited fines.

The government intends to have the new regime for the designated benchmarks in place by the end of this year, even though the Fair and Effective Markets Review will not have been completed by then. It is consulting on the changes until 23 October.