Banking: LIBOR and EURIBOR

Debate between Lord Bates and Lord Deighton

Tuesday 12th February 2013 Lords Chamber

[Lord Bates]

To ask Her Majesty’s Government what plans they have to review the working of the Financial Services Authority’s executive settlement procedures in the light of discounts applied to fines levied as a result of misconduct in relation to the setting of the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR).

[The Commercial Secretary to the Treasury (Lord Deighton)]

My Lords, the Financial Services Authority awards discounts for early settlement of cases involving financial penalties, as it considers early settlement to be in the public interest. The Government take the manipulation of LIBOR and EURIBOR very seriously. We accepted the weekly review recommendations on LIBOR, and are implementing them in full. Furthermore, we are ensuring that the money raised from these fines will go to specific causes which demonstrate the best of British values.

[Lord Bates]

I am grateful to my noble friend for that Answer. Does he agree with me that the manipulation of these rates by some banks was a deeply cynical fraud against borrowers in times when they could least afford it, and that while the fines levied by the FSA on those responsible may be at record levels they were a small fraction of the profits made by those institutions? The fines were substantially less than those imposed by the US regulator. Due to the FSA’s executive settlement procedures, those responsible received over £100 million in discounts on the fines levied so far. Would it not be more in keeping with the way in which banks treat their own customers if the FSA was now to scrap early-settlement discounts and replace them with a system of late-settlement penalties?

[Lord Deighton]

My Lords, my noble friend makes an important point about the seriousness with which we are addressing this attempted manipulation of LIBOR rates. On the specific question of the penalties, the Financial Services Authority is the independent regulator. It is mandated to set all the rules on regulatory matters. That includes decisions about using early-settlement discounts as a way of managing the process. It considers it in the public interest to settle matters in cases involving financial penalties as early as possible and to provide incentives. There are many advantages in early settlement. It helps consumers to get compensation earlier than would otherwise be the case and prevents cases being contested at the regulatory decisions committee, which could cost a lot of time and money.