Rt Hon George Osborne MP
Chancellor of the Exchequer
Post date: Tuesday, 3rd July 2012
Mr Speaker, on Thursday I updated the House on the Financial Services Authority's investigation into Barclays and the attempted manipulation of the Libor market in the years running up to and during the crisis.
The House has just heard from the PM and I would like to give more details of the steps we are taking.
This morning, I spoke to Marcus Agius, who confirmed that he was resigning as Chairman of Barclays because of the unacceptable standards of behavior within the bank.
The Treasury Select Committee is calling the Chief Executive of Barclays to account for himself and for his bank on Wednesday.
I look forward to hearing his answers.
As I also said last week, every avenue of possible criminal investigations for individuals involved in attempted manipulation of Libor is being explored.
However, in the view of its Chairman, Lord Turner, the powers that were given to the Authority do not allow it to pursue criminal sanctions.
People in the country ask why they didn't have the necessary powers.
And people ask whether these gaping holes in the existing law mean that no action at all is possible.
After all, fraud is a crime in ordinary business; why shouldn't it be so in banking?
I agree with that sentiment, and I welcome the Serious Fraud Office's confirmation they are actively and urgently considering the evidence to see whether criminal charges can be brought - particularly in relation to the current Fraud Act and in relation to false accounting.
They expect to come to a conclusion by the end of this month.
We would encourage them to use every legal option available to them.
I'd like to address three further issues today.
First, what happens to the money we get from the fines.
Second, what urgent changes are needed to the regulation of Libor and other markets to prevent such abuse occurring again, and to ensure the UK authorities have the powers they need to hold those responsible to account.
Third, the wider issue of what went so badly wrong in the culture of our banking system and the way it was regulated, which allowed such fundamental failures of basic standards of conduct to go unchecked and unchallenged.
Last week, I said that we wanted to ensure that fines paid by the financial services industry in future go to the Exchequer.
Today, I can confirm we will propose amendments to the Financial Services Bill in the autumn to make this happen.
This will remove a long-standing anomaly and bring the regulator into line with regulators in other sectors of the economy.
The new arrangement will apply to fines received from 1 April 2012 so that it includes the Barclays penalty.
From now on, the multi-million pound fines paid by banks and others who break the rules will go to the benefit of the public not to other banks.
Mr Speaker, that brings me to the second question of the urgent changes we need to make to the regulation of Libor to prevent this ever happening again, and to ensure that in future authorities have the appropriate powers to prosecute those who engage in market abuse and manipulation.
I have today asked Martin Wheatley, the Chief Executive designate of the Financial Conduct Authority to review what reforms are required to the current framework for setting and governing Libor.
This will include looking at:
The review will also look at the adequacy of the UK's current civil and criminal sanctioning powers with respect to financial misconduct, and market abuse with regards to Libor.
And it will assess whether these considerations apply to other price-setting mechanisms in financial markets - to ensure that these kinds of abuses cannot occur elsewhere in our financial system.
We need to get on with this - not spend years on navel gazing when we know what has gone wrong.
I am pleased to tell the House that Mr Wheatley has agreed to report this summer so that the Financial Services Bill currently before Parliament or the future legislation on Banking Reform can be amended to give our regulators the powers they clearly need.
Mr Speaker, the review is essential to ensuring we mend the broken regulatory system introduced by the last Government, which allowed these abuses to happen.
But the manipulation of the most used benchmark interest rate reveals that there is a broader issue of the professional standards and culture in some parts of the financial services industry that was allowed to grow up in the years before the crisis and which may still need change.
I don't think a long costly public inquiry is the right answer.
It would take months to set up and years to report.
We know what went wrong.
We can't wait until 2015 or 2016 to fix it.
In just six months time we will be bringing forward the Banking Reform Bill that will implement the recommendations of Sir John Vickers' Independent Commission on Banking.
This will bring far reaching lasting change to the structure of British banks ring fencing retail banks from their investment banking arms.
Let's see if we can use this Banking Bill to make any further changes needed to the standards of the banking industry, and the criminal and civil powers needed to regulate it and hold people to account for their behaviour.
As the PM said, we propose that Parliament establish an inquiry into professional standards in the banking industry.
The Government will in the coming days lay before both Houses a Motion to establish a Joint Committee, drawn from the Commons and the Lords.
It should be chaired by the Chair of the Treasury Select Committee, the Honourable Member for Chichester.
He and his Committee have already been quick off the mark in investigating the issue, and we certainly want their hearings this week to proceed.
I propose that the Terms of Reference should be this: building on the Treasury Select Committee's work and drawing on the conclusions of UK and international regulatory and competition investigations into the Libor rate-setting process, consider what lessons are to be learnt from them in relation to transparency, conflicts of interest, culture and the professional standards of the banking industry.
I propose that it should be able to call witnesses under oath, including current Members of Parliament and Lords.
And I can confirm that we will provide the Committee with the resources it needs to do the job.
I would suggest to the House that we ask the Joint Committee to report by the end of this year, 2012.
That is enough time to do the job - and do it well - but not so long that this issue drags on for years.
And it means, in very practical terms, that we can amend our Banking Bill to take on board its recommendations.
I hope all Parties will support the Motion we put forward.
The failure to regulate the banks in the boom years cost this country billions.
The behaviour of some in the financial services has damaged the reputation of an industry that employs hundreds of thousands of people and is vital to the economic prosperity of the country.
We're changing the failed regulation; reforming the banks; now it's time to deal with the culture that flourished in the age of irresponsibility and hold those who allowed it to do so to account.
I commend this statement to the House.