European Parliament building
Almost no-one in the UK would these days dispute the fact that the country’s banking sector needs a serious overhaul to correct the runaway behaviour which helped nudge Britain (and others) into the financial crisis. The Liberal Democrats have rightly been most persistent in demanding reforms, in particular a break-up of retail and casino banking, as recommended by the independent Vickers Inquiry.
The latest scandal about fixing the benchmark Libor interest rate plumbs new depths – even by the standards of Britain’s banks. Here were a set of individuals who knowingly distorted the primary market reference for everything from mortgage rates to student loans for the sake of profits, offering each other bottles of champagne as a reward. No-one yet knows the true cost of this manipulation, but it’s hard to underestimate the impact. Worldwide contracts worth more than $360tn (£) are based on the Libor benchmark, which seems to have become a mere plaything for the boys from the City.
This week’s news that the European Commission wants to explicitly criminalise the fixing of benchmarks like Libor therefore comes as welcome relief. If agreed by governments, the new EU rules would set minimum penalties for individuals caught manipulating financial indexes, compared by Justice Commissioner Viviane Reding to “corrupt casino dealers betting with their clients’ savings.”
While the first arrests linked to the Libor scandal are reportedly imminent in the US – which already has clear criminal sanctions in place – the UK is still struggling to launch a criminal investigation. The EU proposals mean Libor-style banksters would face criminal penalties Europe-wide and that cases like this would be easier to prosecute. Criminal behaviour needs to be properly investigated and brought to justice, whether it’s in the financial sector or elsewhere.
Eurosceptics seeking to row back on EU cooperation in justice should be aware that this is one of the crime-fighting measures the UK would have to turn its back on. Meanwhile over 680,000 people have joined an Avaaz campaign to criminalise rate-fixing and even the Daily Mail managed a rather positive piece on the EU’s initiative.
Of course this new proposal is just one part of addressing a much wider problem, and the EU Commission also plans to step up supervision and revise the way benchmarks like Libor are set in the first place.
While the Libor scandal started in the UK, it is clear that the problems go much further than that. Coordinated European action is the best way to make sure criminal activity in the financial sector is dealt with in the same way as any other.
* Giles Goodall is a Lib Dem European Parliamentary Candidate for South East England.