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Chancellor confirms manipulation of key FOREX benchmark to be made a criminal offence

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Chancellor confirms government will extend legislation put in place to regulate LIBOR to cover seven further financial benchmarks.

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The Chancellor George Osborne today (22 December 2014) confirmed that the government will extend the legislation originally put in place to regulate LIBOR to cover seven further financial benchmarks, including the main foreign exchange benchmark, with those found guilty of manipulating these benchmarks facing up to seven years in prison.

Confirmation of this action, which comes in response to an early recommendation from the ‘Fair and Effective Markets Review’ which was established by the Chancellor in June this year, reinforces the government’s determination to ensure confidence in the fairness and effectiveness of UK wholesale financial market activity.

The government will extend the legislation covering LIBOR to the following seven major benchmarks:

  • WM/Reuters 4pm London Fix, which is the dominant global foreign exchange benchmark;
  • Sterling Overnight Index Average (SONIA) and the Repurchase Overnight Index Average (RONIA), which both serve as reference rates for overnight index swaps;
  • ISDAFix, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions;
  • London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market; and
  • ICE Brent index, which acts as the crude oil market’s principal financial benchmark.

The Chancellor George Osborne said:

The integrity of the City matters to the economy of Britain. Ensuring that the key rates that underpin financial markets here and around the world are robust, and that anyone who seeks to manipulate them is subject to the full force of the law, is an important part of our long term economic plan.

That’s why the government is determined to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them.

The changes announced today will extend the criminal offence of manipulating a ‘relevant benchmark’ originally introduced for LIBOR to any person manipulating these seven benchmarks. They will also subject administrators of, and submitters to, these benchmarks to a number of specific rules, and authorised firms will face a range of sanctions if they breach any of the Financial Conduct Authority’s (FCA) rules and principles – including financial penalties, suspensions and censures.

The FCA and Prudential Regulation Authority (PRA) have already taken tough action to protect customers, markets and financial stability from misconduct in the foreign exchange, fixed income and commodity markets, including fining five banks a total of more than £1 billion following attempts to manipulate FOREX markets, with individuals facing criminal investigation by the Serious Fraud Office.

In June this year, the government announced the establishment of the Fair and Effective Markets Review, which is a joint review by the Treasury, the Bank of England, and the Financial Conduct Authority (FCA) into the way wholesale financial markets operate. Forward-looking in nature, this Review reflects the government’s long term economic plan to ensure Britain remains a world leader in financial services, with successful institutions operating to the highest standards.

Ahead of the legislation announced today coming into force, the FCA will consult on their draft rules, and then publish final rules. The government intends for the legislation to commence on 1 April 2015.

Published 22 December 2014