'The Treasury is proposing a wholesale replacement of the current criminal market abuse offences provisions of Financial Services and Markets Act (FSMA) to include a new offence of making false or misleading statements, or creating false or misleading impressions, in relation to specified benchmarks. For now, the only benchmark specified is LIBOR, but it will be easy to add new ones by secondary legislation. For example, only two weeks ago the press carried reports of an investigation into attempts to manipulate the benchmark for wholesale gas prices and there have been reports of similar allegations for an oil price benchmark. The outcome for those investigations could lead to those benchmarks being added to the list.
'The Treasury is keen to adopt key recommendations made in September by Martin Wheatley, the head of the UK’s Financial Conduct Authority. His review suggested that any attempted manipulation of LIBOR was sufficiently serious to merit being a criminal offence. On that basis, introducing a new criminal offence now will provide a significant deterrent to misconduct whilst the EU civil market abuse proposals, which are being introduced concurrently, run their slow but steady course towards adoption.
'The proposals also reflect Wheatley's concern that any new offence should not require the misconduct to affect or be likely to affect the benchmark. This is a requirement - and therefore a potential failing - of EU proposals to criminalise market abuse under the CS-MAD measure, to which the UK has the right to opt-in. Demonstrating that a particular LIBOR submission moved the fixing is extremely difficult because of the way LIBOR is calculated. A number of the highest and lowest submissions are discarded and the remaining submissions are averaged. An attempt to manipulate by submitting a figure which is above or below the majority will therefore usually be screened out.
'UK / EU clashes over financial services regulation are obviously not new. It is perhaps ironic, however, that the UK has a reputation in Europe for wanting less severe regulation, but following implementation of these proposals it will treat LIBOR misconduct more severely than the rest of Europe does now or is likely to in the future'.
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