This week in the European Parliament’s Economic and Monetary Affairs Committee Euro MPs backed by a massive majority my proposals for new tougher market abuse rules. The vote is a clear signal that the EU is not a soft option or safe haven for perpetrators of market abuse. For the first time we are introducing EU wide criminal sanctions including jail terms for those intent on committing market abuse.
Earlier this year it came to light that banks had been colluding to fix the inter-bank lending rate? Libor (the London inter-bank lending rate), is one of the most crucial interest rates in finance. $350 trillion in derivatives and around $10 trillion in loans are set according to Libor.
The concern for individuals is that this is also the benchmark for pricing some UK residential mortgages, more commonly for commercial mortgages, and increasingly for pricing commercial loans by banks to UK businesses.
Barclays has already been fined £290 million in the UK and US and regulators have now extended their investigations to at least four of Europe’s biggest banks: Crédit Agricole, HSBC, Deutsche Bank and Société Générale. Yet these fines were not a big enough deterrent to prevent the abuse happening in the first place.
The real lesson to be learnt from this crisis is the need to focus on putting in place rules and sanctions to prevent crises and not scrambling and reacting after the banks have yet again undermined confidence and trust in the markets.
The Libor scandal is market manipulation of the worst kind and has demonstrated that the culture in the financial sector has not changed and that they cannot be trusted to self regulate. Our vote has therefore extended the law so that all benchmarks and indices fall under market abuse rules to cover all possible and future manipulation.
The strong stance we have taken on criminal sanctions for market abuse has been shown to have wide public support. The campaigning organisation Avaaz presented me with a petition, signed by over 720,000 people, calling for such sanctions. According to their figures released this week, the overwhelming majority of people polled in France (90%), Germany and the UK (89% each) believe that bankers responsible for fraud or manipulating markets should face criminal sanctions such as jail sentences.
There is still much to do in restoring the trust and confidence in banks and the financial services industry. We must get the real economy moving again and make sure consumers are protected in the financial services sector. These new tougher rules on Market Abuse are a key step along the way in the reform process designed to ensure that financial markets are brought under control and ensure our banks start operating in the interests of the real economy.
Arlene McCarthy MEP is Vice Chair of the European Parliament’s Economic & Monetary Affairs Committee and the Parliament’s Rapporteur on Market Abuse.