Europe Aims to Make Rate Manipulation a Criminal Offense

LONDON â€" The European Commission announced plans on Wednesday to make the manipulation of benchmark interest rates a criminal offense.

European officials are responding to the public outcry over the manipulation of the London interbank offered rate, or Libor, which is used as a benchmark for more than $360 trillion worth of financial products.

In June, Barclays agreed to a $450 million settlement after some of its traders and senior executives were found to have manipulated the rate for their financial benefit. Other major global banks, including HSBC and Citigroup, are facing similar inquiries from regulators worldwide.

On Wednesday, Viviane Reding, the European justice commissioner, said British authorities had not done enough to address the problems with Libor.

Pressure has been mounting on American and British regulators after documents revealed that they had been informed about potential manipulation of rates as far back as 2007. Attention w ill probably continue to focus on the Libor scandal when Treasury Secretary Timothy F. Geithner, who previously was the head of the Federal Reserve Bank of New York, testifies on Wednesday before the House Financial Services Committee.

Under the European Commission's proposals, the manipulation of benchmark interest rates would become a criminal offense. European officials are also considering greater regulatory oversight for a number of benchmark rates, including Libor, which are currently overseen by the industry trade group. The British government is set to conduct an inquiry into how the rate is set, while the British Bankers' Association also is carrying out its own internal review.

Michel Barnier, the European commissioner for the internal market, said on Wednesday that supervisors across the Continent should be more involved in regulating the rates. He added that the recent revelations showed a “total lack of moral values” from some individuals in the financial services industry.

Ms. Reding called the Libor scandal “another example of irresponsible banking practices,” and referred to the bankers implicated in the rate-rigging as “corrupt casino dealers betting with their clients' savings.”

“The Libor scandal reveals major faults in the governance of the process,” she said, adding that the rates “cannot be left to self-regulation.”