LONDON - British authorities failed to spot interest-rate manipulation by big banks because they were narrowly focused on responding to the financial crisis, according to an internal review by the country’s financial watchdog released on Tuesday.
The audit followed widespread criticism from politicians and some of the banks caught up in the scandal involving benchmark interest rates. Critics said regulators did not respond to warnings that employees at certain banks were attempting to alter rates for financial gain.
The review published by the Financial Services Authority, the British regulator, said that there had not been a major failure of oversight by local authorities, but added that officials had become too focused on containing the financial crisis to analyze information connected to the potential rate-rigging.
The British authority also conceded that it had failed to respond quickly to allegations of so-called low-balling, in which managers altered submissions to the London interbank offered rate, or Libor, to portray their firms in a healthier financial position. The watchdog added that Libor had been an unregulated area of the financial markets, which had not received close attention from regulators.
“The F.S.A. did not respond rapidly to clues that low-balling might be occurring,†Adair Turner, the chairman of the Financial Services Authority, said in a statement on Tuesday.
Several European banks, including Barclays and UBS, already have paid multimillion-dollar fines to ! American, British and other international regulators related to the ongoing investigation into Libor manipulation. Other large firms, including Deutsche Bank and Citigroup, remain under investigation.
The Financial Services Authority’s audit was conducted in response to claims made by politicians and the British bank Barclays that regulators had been informed several times about the potential rate-rigging, but had failed to act.
As part of a major overhaul of the Libor rate, the rate-setting process will become regulated by the British authority from the beginning of April, just as the authority is divided into two separate units that forms a major overhaul of the country’s regulator regime.
