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Report flags FSA failings over Libor scandal

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Report flags FSA failings over Libor scandal

A Financial Services Authority (FSA) internal report has flagged failings relating to the regulator's handling of the Libor scandal.

The regulator said it had identified a number of instances where information available provided some indication that Libor had been manipulated and that there were ‘important areas where the FSA should have performed better.’

The report covered the period between January 2007 to May 2009 and reviewed over 97,000 documents relating to 74 communications in detail.

Of those 74 communications, 26 have been judged as providing a direct reference to 'lowballing' or a reference that could have been interpreted as such, said the FSA.

Clear indications include telephone calls from Barclays in March and April 2009, which were documented in the FSA's final notice on Barclays published in June last year. 

The FSA has recently taken enforcement action against Barclays, UBS and Royal Bank of Scotland for failures in respect of Libor submissions.

The report concludes that the FSA’s focus was too narrow when handling Libor related information, that the likelihood of lowballing occurring should have been considered, and that the information received should have been better managed.

FSA chairman Adair Turner (pictured) said: ‘As the financial crisis developed in 2007 to 2008, the FSA’s bank supervisors were primarily focused on ensuring they understood the prudential implications of severe market dislocation. And 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. There are important lessons to be learnt about effective handling of information: these are identified in the report and will be taken forward by both the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) management.’

The report questioned whether there might be other significant non-regulated activities, where wrongdoing by regulated firms in relation to those activities could pose a threat to markets or potentially cause consumer detriment and urged FCA and PRA senior management to consider how such activities would be identified and assessed.  

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