Libor scandal has dealt 'huge blow', says FSA head

Wednesday 4th July 2012

The Libor scandal has caused ‘a huge blow to the banking industry’, FSA chairman Lord Adair Turner told the regulator’s AGM.

He said: “The cynical greed of traders asking their colleagues to falsify their Libor submissions so that they could make bigger profits has justifiably shocked and angered people, in particular when we are facing hard economic times provoked by the financial crisis.

“But sadly it is clear that the behaviours evidenced in the Libor case were not, in the years before the crisis, confined to this specific area of financial activity.”

Turner said there was a more widespread ‘cynical willingness of many traders to sell securities whose value they doubted to customers whose judgments they disparaged’.

He said that ‘how to purge the industry of the culture of cynical entitlement’ was an issue which should be a major area for investigation.

He went on: “These issues relate to what we label ‘wholesale’ rather than ‘retail’ conduct. And it’s fair to say that in the past the FSA has tended to a somewhat ‘caveat emptor’ approach to wholesale conduct issues.”

He said that the ‘caveat emptor’ approach might not be enough, adding: “Any poor practice which unreasonably shifts income to the industry is at the expense of some end retail customer.

“There are no free lunches, and shoddy wholesale practice is not a victimless act, even in those cases where it is not defined as a crime. We will therefore need to think carefully how far we should shift our past approach to the supervision of wholesale conduct, and what resources and skills we need to be more effective in this area.
 
“This is an issue currently under discussion between the executive and the board, and one on which we will comment in the FCA approach document which we will publish in the autumn.”

Turning to the changeover in the regulatory regime from the FSA to its successor bodies, Turner said he is expecting this to be next April.