By Claire Davenport and Huw Jones
STRASBOURG, France/LONDON (Reuters) - Companies found guilty of rigging market benchmarks like Libor could be fined the equivalent of 15 percent of their turnover under a European Union law approved on Tuesday.
The EU law, approved by the European Parliament and due to come into force within two years, revises market abuse rules to make the rigging of benchmarks illegal.
The market abuse rules are also extended to cover electronic trading such as "high-frequency" trading, criticised by some lawmakers for creating volatility in markets.
Three banks - UBS (VTX:UBSN), RBS (LSE:RBS) and Barclays (LSE:BARC) - have been fined for rigging the London Interbank Offered Rate or Libor, but only under existing conduct rules.
This prompted lawmakers to widen the scope of EU rules to benchmarks, as well as to commodity derivatives affecting food and energy prices, to underscore their determination to clamp down on malpractice.
Penalties have also been toughened up so that companies convicted of abuses could be fined up to 15 percent of their annual turnover or 15 million euros $19.9 million (£12.6 million), with individuals fined up to 5 million euros and banned from the industry.
"The Libor scandal was market manipulation of the worst kind. We are seeing more alleged and potential manipulation of benchmarks in energy markets such as oil and gas and foreign exchange markets," said Arlene McCarthy, the British centre-left lawmaker who negotiated the rules with member states.
A second leg to the revision of the EU rules, which will introduce powers to jail market abusers, is expected to be also approved in coming weeks.
Separately on Tuesday, Martin Wheatley, chief executive of Britain's Financial Conduct Authority (FCA) watchdog, confirmed for the first time he was studying ISDAfix, a benchmark widely used to anchor market rates.
He said he was in touch with the Commodity Futures Trading Commission (CFTC), a regulator, on the matter after it said in April it had subpoenaed the International Swaps and Derivatives Association (ISDA) over ISDAfix.
ISDAfix is based on a survey of a panel of banks for the different currencies which are collected by brokerage ICAP (IAP.L) and sent on to Thomson Reuters Corp (TRI.TO), which calculates the fixing.
"We have asked for records, the CFTC have asked for records and I think one or two others have as well," Wheatley told the UK parliament's Treasury Select Committee. "We are talking millions of records. We are at an early stage."
It was too early to say if inquiries will lead to formal investigations or how big possible fines could be, he said.
Asked if he was aware of attempts to manipulate other benchmarks such as in oil and gas, Wheatley said: "Yes. In our enforcement process at any one time we have several hundred lines of inquiry. The answer is yes. We are very busy."
ICAP said in May it was co-operating with the CFTC in its inquiries about ISDAfix but its internal investigations had concluded its brokers had done nothing wrong in relation to the measure.
The revised EU law also bans company managers from selling their shares within a month of monthly, quarterly or annual statements, aiming to help crack down on insider trading. Executives must also report any share transactions with a value of more than 5,000 euros. ($1 = 0.7538 euros)
(Editing by David Holmes)
- European Parliament