UK FSA was warned over Libor as early as 2008

The UK FSA was aware that Libor rigging could pose a ‘significant issue’ to the UK’s banking system as early as 2008, an internal report has shown.

The UK Financial Services Authority has admitted it was slow to respond to information provided by banks, and warnings from its own staff, that highlighted the dangers of Libor manipulation.

A series of documents revealed by the FSA have confirmed a number of warnings it received prior to the scandal becoming public.

In one warning, the compliance officer of a small bank emailed the FSA stating: “It appears to us that something is wrong when a panel of contributor banks is supplying Libor at below what the banks can achieve in the market. It may be worth the FSA investigating to see if the contributor banks are making profits on the back of these quotes.”

In another email sent in the same month, an employee in the FSA’s legal department sent an email to a colleague in its risk department stating: “There could be a more significant issue if it [Libor] is not being calculated properly as that would potentially mean that people are paying rates on a false premise,” wrote the unidentified official in April 2008.

The FSA’s internal report found 74 potential potential warnings of so-called “lowballing” of Libor submissions by major banks, of which 24 were described as “direct,” according to The Telegraph.

Of these direct references, half came from Barclays, which was last year fined £290m by US and British regulators after admitting attempting to rig key global borrowing rates.

However, the FSA said its review of 17 million records, including the detailed study of 97,000 documents, found no other references to rigging.

“The FSA had no formal regulatory responsibility for the Libor submission process. As a result, the FSA did not respond rapidly to clues that lowballing might be occurring,” said Lord Turner, chairman of the FSA.

 

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