The Economic Secretary to the Treasury (Andrew Griffith)
Let me first congratulate my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) on securing this debate. I recognise the work he has done to raise the profile of issues relating to the LIBOR scandal. I am also grateful to the right hon. Member for Hayes and Harlington (John McDonnell) for his intervention.
I would like to begin by saying a few words about LIBOR more generally. It is intended to reflect the rate at which banks lend to each other in wholesale markets. At its height, it was referenced by over £400 trillion-worth of financial contracts and was published for five major currencies. It has historically been important, not only for how our financial system operates but for everyday households and businesses. It featured in all sorts of contracts, including mortgages and loans in this country and internationally.
In the wake of the 2008 financial crisis and the decline in liquidity in inter-bank lending, the Financial Stability Board made it clear that continued use of major interest rate benchmarks such as LIBOR represented a potentially serious source of systemic risk. This was because the underlying market that these rates were intended to measure was no longer sufficiently active. To make LIBOR submissions, banks were instead increasingly reliant on expert judgment, which made LIBOR vulnerable to manipulation and a source of potential financial stability risk. This began the process now known as LIBOR wind-down, in which the UK Government, along with the regulators, have worked with the market to gradually phase out LIBOR. That process is almost complete. It has been complex but, to date, successful.
Turning to the scandal raised by my right hon. Friend, in 2012 it emerged that LIBOR was being manipulated for financial gain, and this became known as the LIBOR scandal. It was discovered that bankers were falsely inflating or deflating their rates to profit from trades. As a result, investigations into criminal activity began in a number of jurisdictions including the UK and the US. As well as fines to banks including Barclays, UBS and Deutsche Bank, the Serious Fraud Office secured five convictions for LIBOR rigging.
I agree with my right hon. Friend’s sentiment that this was a serious matter, and the response of the Government at the time reflected that. The Government set up the independent Wheatley review in 2012 and subsequently endorsed all of Mr Wheatley’s recommendations. They introduced legislation through the Financial Services Act 2012 to bring LIBOR under the regulatory jurisdiction of the Financial Conduct Authority, where it has remained. They also made manipulating benchmarks such as LIBOR a criminal offence. As I have mentioned, the investigations and subsequent prosecutions relating to the scandal were led by the independent Serious Fraud Office.
I note that my right hon. Friend says he will write to the Metropolitan police and has written to the Treasury Committee. He will understand that it would be inappropriate for me to comment from the Dispatch Box on any individual cases, or on the specifics of those cases. I can say that the Government’s position on financial market abuse is clear: it undermines the integrity of public markets, reduces public confidence and impairs their effectiveness.
During the financial crisis, state authorities were involved in the rigging of LIBOR—lowballing, as my right hon. Friend said—and the Treasury Committee was misled. He will be aware of the evidence provided to the original Treasury Committee inquiry by the former deputy governor of the Bank of England, Paul Tucker, and of the conclusions reached by the Committee in paragraph 107 of its report.
Select Committees of this House perform a vital role in holding Ministers and others to account, and it is important that, in fulfilling this role, they receive accurate evidence. It would, however, be a matter for the Treasury Committee and the relevant witnesses to respond as needed and, like my right hon. Friend, I look forward to hearing the response of the Committee’s Chair.
As a fellow parliamentarian, I thank my right hon. Friend for using his significant authority in this place to raise this important matter. I hope he will be content if I conclude my remarks with the hope that the UK will always uphold the integrity of our markets, as well as fair justice for those who work in them.
Question put and agreed to.