More could be done to punish traders who try to manipulate financial markets, the deputy governor of the Bank of England has said.
Announcing the terms of the Bank's consultation into rebuilding trust in financial markets, Minouche Shafik said it should consider stronger penalties for what she called "bad apples".
Its review will focus on fixed income, currency and commodity markets.
The speech marks Ms Shafik's first as deputy governor.
The review follows the Libor scandal which saw banks fined £4bn for manipulating the inter-bank lending - or Libor - rate, which they did to boost profits.
Chancellor George Osborne, ordered the inquiry - called Making Markets Fair and Effective - to try and restore the reputation of other UK-based financial markets.
"Start Quote
End Quote Minouche Shafik Deputy governor, Bank of EnglandMore needs to be done to monitor for, and where it is found, punish misconduct"
Speaking at the London School of Economics (LSE), Ms Shafik warned that there could easily be a repeat of the Libor scandal.
"The risk is that, as memories of recent enforcement cases fade, bad practices may re-emerge," she said.
"Some say that may already be happening," she added.
And she suggested that the review - which she is heading - should think about increasing sanctions against individuals.
"The review also wants to consider whether more needs to be done to monitor for, and where it is found, punish misconduct," she said.
Any changes would be in addition to new laws brought in by the government, which already penalise senior bank managers if their conduct leads to a bank's failure.
Under the Financial Services Act of 2013, such managers can be sent to prison.
Transparency
Benchmarks like ICE Brent affect the price of fuel at the pumps Alongside the Bank of England, the review is being run by the Financial Conduct Authority (FCA) and the Treasury.
It suggests major reforms to fixed income markets, as well as foreign exchange and commodity trading.
Such markets are vital to the reputation of London as a financial centre. 70% of trading in international bonds take place in London, for example.
Among its recommendations, the review suggests
- a global code of conduct
- greater use of electronic surveillance
- stronger penalties for staff breaching guidelines
- improved transparency, for example by greater use of electronic platforms
- improvement of benchmark design
The Bank has already singled out seven benchmarks, which it also believes should be reformed. These are used for the trading of everything from interest rate swaps to foreign exchange, and from gold to oil.
The benchmarks affect millions of people, by determining the price of shopping, or the cost of filling up at the pumps.
The FCA is already part-way through an enquiry into the manipulation of foreign exchange markets, known as Forex.
When it launched the enquiry, just over a year ago, it said it would be some time before it decided whether there had been any misconduct. Nevertheless it is thought that talks have been taking place between the FCA and six banks, over possible fines.
The fines could be announced as soon as next month.
Benchmarks ripe for reform? | |
|---|---|
| Name | Asset |
| SONIA - Sterling Overnight Index Average | Unsecured overnight sterling lending |
| RONIA - Repurchase Overnight Index Average | Secured overnight sterling lending |
| ISDAfix - International Swaps and Derivatives Assoc fix | Fixed for floating interest rate swaps |
| WM/Reuters 4pm London Closing Spot | Spot price for foreign exchange rates |
| London Gold Fixing | Twice daily fix on gold prices |
| LBMA Silver Price - London Bullion Market Assoc | Daily fix on silver prices |
| ICE Brent | Futures contract on Brent crude oil |
The Bank of England proposals will now go out for consultation, before a final report in the summer of 2015.
Penalise bad traders, suggests Bank
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