UK regulators to focus on "fixed income, currency and commodities markets" as part of new banking review

Out-Law News | 13 Jun 2014 | 4:07 pm | 1 min. read

New criminal sanctions for those found guilty of offences in relation to the London Interbank Offered Rate (LIBOR) and other benchmark interest rates should be extended to cover abuse in the foreign exchange, bond and commodity markets, the UK government has said.

The tough new penalties would be introduced as part of a new review of the "fairness and effectiveness" of wholesale financial markets, announced jointly by the UK Treasury and market regulators the Bank of England (BoE) and Financial Conduct Authority (FCA). Although the review will focus on a wide range of wholesale markets, it will be targeted at areas in which recent allegations of the most serious misconduct have arisen, including the foreign exchange markets, according to the announcement.

"The integrity of the City matters to the economy of Britain," said chancellor George Osborne, ahead of his annual Mansion House speech in the City of London. "Markets here set the interest rates for people's mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy."

"I am going 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 said.

The review will be led by Bank of England deputy governor for markets and banking Minouche Shafik, with FCA head Martin Wheatley and Charles Roxburgh of the Treasury as co-chairs. It will also involve market participants. It is expected to run for 12 months and to recommend new governance principles and standards of behaviour and tools to strengthen market oversight. It will also consider whether more market activities should be regulated and to what extent international action is required, according to newly-published terms of reference.

Earlier this year, EU lawmakers approved the introduction of a common set of criminal sanctions for market abuse offences across the trading bloc; with sanctions including fines and prison sentences of at least four years for insider dealing, unlawful disclosure or market manipulation. However, the Chancellor said that the UK would opt out of these common rules to allow "flexibility to reflect specific circumstances in the UK's globally important financial sector".

The UK government will also consult this autumn on new domestic measures to be taken forward before the review reports back next year, the Chancellor said. Along with extending LIBOR offences, which carry prison sentences of up to seven years, to other types of market manipulation, the government also intends to extend new conduct rules and certification for senior managers to cover foreign banks with UK branches as well as those headquartered in the country.

According to the announcement, the review will be run "without prejudice" to the FCA's ongoing investigation into alleged historic misconduct in foreign exchange markets. The FCA has not announced that it is carrying out a formal investigation, but has confirmed that it is "gathering information" from market participants "alongside several other agencies".