City banks are still failing to get a grip of key pricing benchmarks such as Libor interest rates, despite paying billions of dollars in fines over their traders’ attempts to rig them.
Dealing a further blow to the financial centre’s already battered reputation, the Financial Conduct Authority described the application of lessons learned from the Libor, forex and gold rigging scandals as “uneven across the industry”.
The City watchdog also said that bankers “often lacked the urgency required, given the severity of recent failings”.
The findings will come as a shock to the City as it battles to regain public confidence.
Equally worrying to them will be the fact that thematic reviews can often be the precursors to future disciplinary action against companies found to have engaged in poor practice.
Benchmarks such as Libor are not based on trades but on banks’ submissions. The latter is based on what banks expect to pay to borrow.
That leaves then open to manipulation, particularly when traders’ profits depend on contracts linked to them.
The FCA said it had found that “some firms” had not made “sufficient effort to properly identify the conflicts of interest that could arise from their businesses and benchmark activities”.
The regulator accepted that progress has been made. But it has ordered banks to strengthen the oversight of benchmarks and to better manage potential conflicts of interest. It also wants more controls and better training.
Tracey McDermott, director of supervision at the FCA, said: “We have seen widespread historic misconduct in relation to benchmarks. It is now critical that firms act to restore trust and confidence in the system.”
Simon Morris, a financial services partner with the law firm CMS, said he found it “surprising” that the FCA had found a lax approach by some firms towards putting things right, given how “benchmark manipulation came close to shattering the City’s reputation for good”.
