Brussels seeks to address market rates abuse

Michael Barnier, the Commissioner for the single market is expected to propose serious changes to the market abuse directive (2003/6/EC)  and the proposed regulation ‘on insider dealing and market manipulation’  in the near future. These amendments to the market abuse rules will be proposed in reaction to the Libor rate-rigging scandal and will seek to address potential loopholes in the legislation and enforce serious criminal charges to all those involved in manipulating or tampering with indices such as Libor and Euribor.

Barnier has denounced such falsifications of benchmark rates as a “betrayal” to the EU with “potentially systemic consequences”. This level of tampering can only harm the already precarious state of the pan-European economy.

The scandal surrounding the London interbank lending rate (Libor) has the financial community of the City of London in distress over recent weeks, culminating in the resignation of the UK bank Barclays’ chief executive Bob Diamond.

The situation has elicited strong reactions with persons like Barney Frank, the congressman who led a US financial regulation overhaul having told the Financial Times that banks “monkeying” with Libor for their own benefit was “outrageous”. Andres Dombret, a board member of the German Bundesbank has been quoted as calling reforms for a system which was highly “vulnerable to fraud”. He states further that the problem with the current system is that it is self-regulating, fairly going on to argue that the system lacks the necessary level of transparency. Barnier plans to address this by subjecting the current situation to close scrutiny so as to ascertain whether it is necessary to bring the system under the watch of external regulators.

The proposed amendments will build on the already proposed changes that Barnier brought forward towards the end of 2011. Approval may well take up to a year since it would require the approval of all EU governments respectively as well as the European Parliament to vote in favour of the changes.

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