DealBook: British Regulators Slow to Respond to Libor Scandal, Audit Says

Andrew Winning/ReutersAdair Turner, the chairman of the Financial Services Authority.

LONDON – British authorities failed to spot interest-rate manipulation by big banks because they were narrowly focused on responding to the financial crisis, according to an internal review by the country’s financial watchdog released on Tuesday.

The audit followed widespread criticism from politicians and some of the banks caught up in the scandal involving benchmark interest rates. Critics said regulators did not respond quickly enough to warnings that employees at certain banks were attempting to alter rates for financial gain.

The review published by the Financial Services Authority, the country’s regulator, said there had not been a major failure of oversight by local authorities, but it added that officials had become too focused on containing the financial crisis to analyze information connected with the potential rate-rigging.

The authority also conceded that it had failed to respond quickly to allegations of so-called lowballing, in which managers altered submissions to the London interbank offered rate, or Libor, to portray their firms in a healthier financial position. The agency added that Libor had been an area of the financial markets that had not received close attention from regulators.

“The F.S.A. did not respond rapidly to clues that lowballing might be occurring,” Adair Turner, chairman of the Financial Services Authority, said in a statement on Tuesday.

Several European banks, including Barclays and UBS, have paid multimillion-dollar fines to American, British and other international regulators related to the continuing investigation into Libor manipulation. Other large firms, including Deutsche Bank and Citigroup, remain under investigation.

The Financial Services Authority’s audit was conducted in response to claims made by politicians and the British bank Barclays that regulators had been informed several times about the potential rate-rigging, but had failed to act.

As part of a major overhaul of the Libor rate, the rate-setting process will come under the oversight of British regulators in April, just as the Financial Services Authority is divided into two separate units as part of a major overhaul of the country’s regulatory regime.

This is not the first time Financial Services Authority has come under fire since the financial crisis began. The agency has also acknowledged partial blame for its role in the bailout of the local lenders Royal Bank of Scotland and Northern Rock.

Article source: http://dealbook.nytimes.com/2013/03/05/audit-faults-british-regulators-response-to-libor-scandal/?partner=rss&emc=rss