Lack of external accountability
Let me turn to the final flaw in the current system - the lack of external accountability.
Under the current regulatory and legal framework, the FSA does not regulate the process of making or compiling Libor submissions. While the FSA is currently taking regulatory action in relation to attempted manipulation of LIBOR, this is on the basis of the connection between LIBOR submitting and other regulated activities
Further, because of this, individual employees of banks involved in the process do not have to be approved by the FSA. This restricts the regulator's ability to take disciplinary action against individuals.
In hindsight, it now appears untenable for such an important process to be unregulated.
So this is the final lesson. There is a clear lack of external accountability to safeguard that the incentives of those involved in this process are aligned with the wider interests of market participants, benchmark users and the public. Added to this, there is a lack of a comprehensive sanctions regime to ensure that those who manipulated the rate are brought to book.
Overall then, the evidence we have seen in relation to this manipulation paints a clear and damning picture about the prevalence of the wrong incentives, and the sorts of behaviour that has allowed.
Whilst conduct in the banking industry at large is rightly a separate and ongoing debate, my mandate is clear - reform is needed to prevent the possibility of this gross misconduct from reoccurring – both in how LIBOR is constructed, and how it is overseen and enforced.
My team and I have addressed each of these failings in the recommendations that I will set out for you now.
3. The Wheatley Review recommendations

Consultation
Following the launch of my discussion paper on August the 10th we have met with a large number of stakeholders, and considered the many written responses that we received.
I would like to offer my thanks to all those involved for their timely and thought-provoking engagement with the Review.
Having considered all the issues and evidence in detail, let me turn to the steps that should be taken to ensure that LIBOR becomes a relevant, valued and trusted benchmark.
The report sets out a comprehensive 10-point-plan to fix LIBOR. This is through reforms to put a stop to what is a broken system built on flawed incentives, incompetence and the pursuit of narrow interests that are to the detriment of markets, investors and ordinary people.
(i.) Regulation of LIBOR
The first step for credibly reforming LIBOR is to ensure that there is a clear, consistent and effective regulatory regime that underpins all activity.
This would allow the FSA to take action against those who break the rules, and provide confidence that misconduct will not be left unseen or unpunished.
In the light of recent evidence, it is clear that better and stronger regulatory tools are needed to crack down on such unacceptable behaviour.
I am recommending three specific regulatory changes to achieve these goals:
•First, submission and administration of LIBOR should become regulated by the FSA;
•Second, the key individuals in these processes should be FSA approved persons; and,
•Finally, amend the Financial Services and Markets Act to allow the FSA to prosecute manipulation or attempted manipulation of LIBOR.
Bringing the submission and administration of LIBOR under the FSA's regulatory umbrella will enhance the FSA's ability to:
•Put in place rules that set out requirements on firms to ensure the integrity of the submission process.
•Allow the FSA to supervise the conduct of firms and individuals involved in the process,
•Critically, the FSA will be able to take regulatory action against firms and approved persons in relation to misconduct, including public censure and financial penalties.
Many of the problems we have seen are down to the behaviour of individuals. These powers will allow the FSA to approve key individuals for these roles, ensuring that they are fit and proper to perform the job, something which is clearly lacking in the present system.
As part of this process, my final recommendation is to amend the Financial Services and Markets Act to include, as an offence, the making of a false or misleading statement in order to manipulate LIBOR. This would enable the FSA to use criminal powers for the worst cases of attempted manipulation.
These powers to take action against wrongdoers will be in addition to the powers under the new European market abuse regime. The European Commission has acted quickly to amend this new regime so that it will apply to manipulation of benchmarks.

©RIPRODUZIONE RISERVATA