Opinion: Brussels vs. the banksters

European Parliament building

European Parliament building

Almost no-one in the UK would these days dispute the fact that the country’s banking sector needs a serious overhaul to correct the runaway behaviour which helped nudge Britain (and others) into the financial crisis. The Liberal Democrats have rightly been most persistent in demanding reforms, in particular a break-up of retail and casino banking, as recommended by the independent Vickers Inquiry.

The latest scandal about fixing the benchmark Libor interest rate plumbs new depths – even by the standards of Britain’s banks. Here were a set of individuals who knowingly distorted the primary market reference for everything from mortgage rates to student loans for the sake of profits, offering each other bottles of champagne as a reward. No-one yet knows the true cost of this manipulation, but it’s hard to underestimate the impact. Worldwide contracts worth more than $360tn (£) are based on the Libor benchmark, which seems to have become a mere plaything for the boys from the City.

This week’s news that the European Commission wants to explicitly criminalise the fixing of benchmarks like Libor therefore comes as welcome relief. If agreed by governments, the new EU rules would set minimum penalties for individuals caught manipulating financial indexes, compared by Justice Commissioner Viviane Reding to “corrupt casino dealers betting with their clients’ savings.”

While the first arrests linked to the Libor scandal are reportedly imminent in the US – which already has clear criminal sanctions in place – the UK is still struggling to launch a criminal investigation. The EU proposals mean Libor-style banksters would face criminal penalties Europe-wide and that cases like this would be easier to prosecute. Criminal behaviour needs to be properly investigated and brought to justice, whether it’s in the financial sector or elsewhere.

Eurosceptics seeking to row back on EU cooperation in justice should be aware that this is one of the crime-fighting measures the UK would have to turn its back on. Meanwhile over 680,000 people have joined an Avaaz campaign to criminalise rate-fixing and even the Daily Mail managed a rather positive piece on the EU’s initiative.

Of course this new proposal is just one part of addressing a much wider problem, and the EU Commission also plans to step up supervision and revise the way benchmarks like Libor are set in the first place.

While the Libor scandal started in the UK, it is clear that the problems go much further than that. Coordinated European action is the best way to make sure criminal activity in the financial sector is dealt with in the same way as any other.

* Giles Goodall is a Lib Dem European Parliamentary Candidate for South East England.

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  • Stephen Hesketh 29th Jul '12 - 7:56am

    @Liberal Eye – the fact that this already-illegal activity has been going on for years and that existing British laws have not been used (for whatever reason) demonstrates perfectly why this Commission initiative is required. If the UK government and financial sector wish to keep European authorities from regulating, all I can say is they’d better get their act together pretty sharpish.

    If the banking crisis, various mis-selling scams and ongoing excessive personal pension charges teach us anything it is surely that the entire culture has been totally perverted in pursuit of personal gain.

  • LiberalEye –
    With you on the powerful figures angle. Also no chance via the dead duck SFO.
    The only real action we are likely to see in this country is when the US starts it’s quickie extraditions of Bankers to face their courts. Suddenly you are going to see the gov get very concerned about the Extradition treaty being unfair.

    The malaise in banking is much more far reaching in the rest of the economy though. Why bother investing in industry when you can turn a much quicker profit by dealing in complex financial instruments or one way bets on rates indexes etc With a word in the ear of your mates in the Libor back room .

    It’s no coincidence that as the City has grown here in the UK that manufacturing has been decimated.

  • @ Liberal Eye

    I agree the existing law is adequate, it looks like there was clear intent to make gains by misrepresenting information.

    @ Stephen Hesketh

    As law enforcement is local you solution does not fix the problem. As liberals we should avoid the temptation that Labour fell in to of legislative diarrhea, creating new laws because they couldn’t be bothered to enforce the existing laws. There are serious questions over the SFO’s ability to do their job as they have left this until it hit the headlines (along with historical questions about their capability).

    If your solution is that Europe should create a criminal justice system that will have the British citizens handed over for crimes committed in the UK under UK Law to be tried outside the UK you are suggesting the European equivalent of the current arrangements with the US. That is another sure-fire way to trash the credibility of the EU among the UK population.

  • Stephen Hesketh 29th Jul '12 - 8:30pm

    @ SimonSez. Completely agree with your summary regarding the decimation of our manufacturing industry etc.
    @ Liberal Eye and Peter Chival – some excellent points/observations.

    @PSI I do basically agree with your points but also repeat mine: “If the UK government and financial sector wish to keep European authorities from regulating, all I can say is they’d better get their act together pretty sharpish.”

    I’d particularly like Nick Clegg and Vince Cable to lead the response on this as Liberal Democrats – not only as a matter of simple justice but to clearly demonstrate that having Liberal Democrats in Government does make a difference.

    If the UK authorities don’t/won’t act, rather than backfiring on the Commission, I could foresee calling time on this sort of behaviour as being something of a coup for them. The average Briton has surely had a belly full of banksters and their ilk and particularly their unrestrained self serving greed. Now is the time for us to see some action!

  • Giles Goodall 30th Jul '12 - 2:02pm

    Thanks to all for the comments, many good points.

    @Liberal Eye
    There are no doubt plenty of powerful people with an interest in this not coming to prosecution, but the Serious Fraud Office has itself said publicly that they need to “assess whether the available offences are there for us to prosecute in a criminal court.” This means there is unfortunately not yet a clear cut case under existing UK legislation, unlike the US. Resources and mandate of the SFO and Financial Services Authority are another issue.

    The EC proposal is a big step forward because it would make sure every EU country has dissuasive minimum penalties in place to deter criminal behaviour in the first place. This is about cooperation between justice systems to deter and tackle crime.

    @SimonSez, Stephen Hesketh
    Lib Dems should certainly be leading on this issue, just as we have on need to reform the sector more generally. Agree once again with the point about redressing the economy and fact that the UK has for far too long been under in thrall to a powerful and well-resourced financial lobby to the cost of the economy and taxpayer as a whole.

  • @ Giles

    This is a stupid proposal from the EC and would further damage the image of the EU’s reputation in the UK.

    If you follow your argument to it’s logical conclusion we shouldn’t have any laws set in any of the UK ligislators and the European parliment should set all criminal law.

    I firmly believe the activity identified in relation to LIBOR manipulation at Barclays (and probably at other banks) falls foul of the 2006 Fraud Act.

    You don’t need a law to say it is illegal to rob a person in Birmingham if you have a law that simply says it is illegal to rob someone. We should resist the tempation to engage in legislative diarrhea.

    Europe has no need to create laws for crimes that are domestic, this looks exactly like fraud commited in the UK by institutions operating in the UK. The authorities in the UK should get on with their jobs and procecute. What you suggest is not cooperation it is creating laws over the UK laws which are already adequate to deal with the problem and simply need to be enforced properly.

    @ Peter and Liberal Eye

    There is almost certainly some crounding out by the finance sector but I think this is long term rather than short term so we can still have a recovery with out the need for a readjustment. The readjustment could be carried out more carefully rather than in a great rush.

    The short term problem is the fear and the lack of available credit. The first from the concersn about the Euro, hte second from the excessively quick introduction of higher capital requirements on banks. The first requires Europe to decide one way or the other about what it will do (organised dismantle or full fiscal union with democratic legitimacy)
    the second requires a longer implementation of capital requirements.

  • Given the global role of “the City”, the fixing on interest rates isn’t just a domestic issue as such actions inevitably have a knock-on effect in the rest of Europe. Hence, the rationale for a minimum EU wide standard being proposed. Obviously, though the adoption of such a standard would need to be accompanied by a willingness to investigate and prosecute such potentially criminal behaviour.

    The other member states will probably prefer the UK regulator to do this but if, as in this case, the UK regulator appears either unwilling to do so and/or asleep at the wheel, then inevitably questions will be asked as to whether they are the right people for the job.

  • @ Paul R

    By logic Europe isn’t enough to regulate the city. LIBOR is used Globally by your logic there should be a global body to set laws.

    LIBOR is the LONDON Inter-Bank Offered Rate it is a UK index if others choose to use it they are choosing to transact using the UK index. “The City” will suffer as a result of the scandal but that is the fault of the banks involved.

    But the point that has been missed is this behaviour was illegal and therefore has a mechanism to resolve this it is called the criminal law. Creating new laws or regulations is pointless and just politicians trying to justify their existence.

    The solution is to enforce the existing law, no further action needed.

  • @ Paul R

    One other thing, the UK regulator has acted, the FSA fined the bank (level of fine is debatable). The lack of action is the agency responsible for enforing the criminal law, in this case the SFO.

    As they have been so reluctant to act you have to question if there needs to be reform of their model, for example ofsetting enforcement costs against sucessful cases to change the enforcement appetite and sacking the heaqd of teh organisation for failing to take action when the evidence was first presented.

    Those two actions would have an effecet on behavior of the SFO.

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