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Publication

The dog that didn't bark

John Cassels
04/07/2012

Locations

United Kingdom

The dog that didn't bark

“The authorities, the regulators – they are there in order to regulate these issues…they are the ones who supervise what is actually undertaken. That is where the responsibility lies.”

Angela Knight, Chief Executive, British Bankers’ Association

Barclays has been fined a total of £290m for letting its traders manipulate the Libor and Euribor interbank lending rates to suit the bank’s trading positions.  Much of the discussion surrounding the revelations has focussed on the weakness of banking regulation.

However, at its heart, the case involves a trade association, the British Bankers' Association.  The BBA collates data from 16 banks in order to compile the rate at which banks borrow from each other.  The overall rate is also seen as a good indicator of the overall health of the economy.

It is reported that questions about Libor were circulating in the City as far back as November 2007.  In 2008, the BBA brought forward an internal review in order to ensure that the rate was as accurate as possible.  The BBA stated that it would strictly enforce the rules and remove banks that submitted inaccurate figures from the panel of 16.  

Following the internal review, the BBA said that it would not be making any major changes to the Libor system.  But, it promised to improve its scrutiny of the rates submitted by banks.  Banks’ input would be “actively monitored every day” and a BBA committee would meet every month to review questionable quotes. 

Whether the Bank of England and others encouraged or condoned the manipulation of Libor is not yet clear.  What is clear, is that the BBA's reputation has been damaged and the banking sector will almost certainly be subject to investigation and further regulation. It appears that the BBA's internal review and ongoing monitoring failed to identify or uncover the risks posed by the wrongdoing that was occurring.

For trade associations, the case highlights the importance of having an effective and robust code of ethics and compliance and risk management strategy. Employees and members must be incentivised to 'speak truth unto power'.  Management must be equipped to identify the risk indicators that point to potential compliance problems. Blaming the regulators when wrongdoing has occurred is unlikely to be an effective defence.

If you would like to know what a good code of ethics and compliance policy looks like and how to identify compliance risks early, please contact me.

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