Speech by Financial Secretary to the Treasury.
Good morning, and thank you, Lord Mayor for hosting us at the Mansion House. In many ways, it is fitting that we should be here, in this building, which is an enduring symbol of the highest virtues of the City of London and its position as a global financial centre.
We are here today to talk about LIBOR - a benchmark used in trillions of dollars worth of lending and derivates transactions globally - and no doubt a very familiar concept for today’s audience.
But until a few months ago, of course, LIBOR was virtually unknown to ordinary consumers and working people around Britain.
So it is unfortunate - to say the least - that LIBOR’s meteoric rise in the public consciousness has come about for the worst possible reasons.
In June, we were faced with scandalous revelations that LIBOR has been subject to unacceptable attempts at manipulation by banks. One bank has been fined by the FSA and by authorities in the US for significant failings relating to LIBOR. Others have been fined by regulators in Japan. And investigations into other banks continue both here and around the world.
This abuse must be condemned in the strongest possible terms. The appalling behaviour behind it has further damaged the public image of a crucial industry still, but one struggling to restore its credibility after the global financial crisis, and, which I feel particularly angry about, has besmirched the reputation of the City of London.
The problem is by no means wholly confined to London - banks and benchmarks operating in a number of jurisdictions have been implicated. It is vital that regulators and governments around the world ensure that this cannot happen again.
But I want to be absolutely clear here that this Government is determined to repair the damage to London’s reputation caused by this behaviour and the failure of the supervisory organisation to detect or prevent it.
And to make sure that the concerns of taxpayers and consumers, the ordinary working people of this country - who have been quite rightly outraged at this latest revelation about lack of integrity among some banks - are confronted and addressed.
And they will be.
The investigations into this scandal are ongoing, and if further wrongdoing is exposed, the strongest possible action will be taken.
This includes possible criminal sanctions - the Serious Fraud Office is at this moment considering whether it is appropriate to bring criminal prosecutions in relation to LIBOR misconduct.
But alongside these enforcement processes, the Government has responded with two wider initiatives.
In a moment, I will introduce Martin Wheatley, the UK’s leading conduct of business regulator. Seven weeks ago, the Chancellor asked Mr Wheatley urgently to consider immediate reforms to LIBOR and to report back by the end of September.
Mr Wheatley has responded magnificently. He is publishing his final report this morning, on time, and he will soon be describing his findings and recommendations to you in detail.
But the Government also recognises that the LIBOR scandal cannot be seen as an isolated incident. There are wider standards of integrity and ethics in the banking industry, leading to a potentially corrosive breakdown of confidence and trust between bankers and the businesses, consumers and taxpayers they exist to serve.
So the Government has proposed the establishment of a Parliamentary Commission. The Parliamentary Commission on Banking Standards was established before the summer, under the chairmanship of Andrew Tyrie, and with highly respected members from both Houses of Parliament.
The Commission has been taking evidence over the summer, and is now calling witnesses to its hearings. The Government looks forward to receiving its first recommendations at the end of the year.
Turning back to the main order of this morning’s business, as I have said, I am here to introduce Martin Wheatley, and his Review’s Final Report. In so doing, I want to make a number of points very clearly:
First, the Government strongly welcomes Mr Wheatley’s Report, and the work that has gone into preparing it - including in consultation with most of those here today.
The Government will respond formally when Parliament returns, but I can say already that we support the broad thrust of Mr Wheatley’s conclusions, and believe that overall his package of recommendations - including those for Government, for the banks, and for the regulators - presents a considered, proportionate and, credible, blueprint for reform.
We will consider very carefully each of the specific recommendations addressed directly to the Government - primarily for changes to the legislative regime, to make LIBOR subject to stronger regulation and criminal sanctions - and will give our formal response the week Parliament returns.
And in the meantime, I urge the banks and relevant industry bodies to get to work immediately with implementing the reforms Mr Wheatley has addressed to them. It is clear that the banking industry has a lot to do to put its own house in order, and this work should proceed without delay.
In particular, I would draw attention to the failings of the industry in running LIBOR as a credible benchmark - this is a situation that needs to be addressed quickly, and work should commence as soon as possible.
So let me sign off, before I hand over to Mr Wheatley, with three key messages.
First, I do not want there to be any doubt that a fundamental change in standards is needed. Ordinary working people up and down the country rightly expect better from their banks, some of which they have had to support with their taxes, and we will not rest until that trust has been restored.
Second, it is clear that self-regulation of LIBOR has failed. The Government is already cleaning up the mess created by the failed regulatory system that we inherited. You should be in no doubt that we will take the action needed to reform the operation of LIBOR as well.
Finally, given the urgency of the challenge, we cannot wait. Action needs to be immediate - from the banks, the regulator and the Government - if LIBOR is to be dependable and the reputation of the City of London is to be as a beacon of probity and excellence worldwide. I say to the banks: this Government will move quickly and decisively using the Financial Services Bill, and we expect you to make the changes demanded of you.
And now, I will hand you over to Martin Wheatley. Thank you.