Turner blasts UK financial industry

Bloomberg

Adair Turner, chairman of the U.K. Financial Services Authority (FSA), gestures during a speech on the banking system, in London, U.K., on Tuesday, July 24, 2012. Turner said banking scandals, including Libor rate fixing, and "huge" bonuses, have destroyed the public's trust in the U.K. financial industry. Photographer: Jason Alden/Bloomberg *** Local Caption *** Adair Turner

Ben Moshinsky London

Banking scandals, including the rigging of interbank interest rates and “huge” bonuses, had destroyed the public’s trust in the UK financial industry, Financial Services Authority (FSA) chairman Adair Turner said yesterday.

Turner, who has been chairman of the watchdog since 2008, said that bankers, politicians and regulators must commit to fundamental changes to rebuild the bond with the country after the London interbank offered rate (Libor) scandal that led to the resignation of Barclays’ chief executive Bob Diamond on July 3.

The outrage over UK banks is “a fury about values, provoked by the quotes revealed in the Libor scandal: ‘come over… I’m opening a bottle of Bollinger’, so we can celebrate fixing the Libor rate,” Turner said in the text of a speech in London. “Those quotes reveal a dealing room culture of cynical greed.”

Diamond stepped down following the bank’s admission that it had submitted false Libor information to benefit derivatives trades and bolster its own positions. Barclays was fined a record £290 million (R3.8 billion) in UK and US probes last month.

Turner said that the country should adopt the Independent Commission on Banking’s recommendations to erect fire breaks around consumer banking operations, and commit to more intense supervision of the financial industry.

Still, there are limits to the regulators’ oversight. It would have been difficult for supervisors to spot some of the manipulation of interest rates at the heart of the Libor scandal, the FSA chairman said.

In relation “to the manipulation of rates by a minute amount for a short period in either direction, I do not believe these problems could have been spotted from outside except via supervision so intensive as to be prohibitively expensive”, Turner said.

Martin Wheatley, who is set to become chief executive of the Financial Conduct Authority when the FSA is split in two, will report on whether Libor setting should be regulated and whether actual trade data can be used to set the benchmark by the end of August.

In addition to government and regulatory actions, banks must change the culture that had led to Libor, and other scandals, including the improper sales of payment-protection insurance. Bank boards needed to question basic product decisions and their revenues, Turner said.

“If the top management and board of a retail bank observes that it is making huge profit margins on an ancillary product sold by a commission-incentivised sales force: what does it do?” Turner said. “Congratulate the sales teams and increase the targets, or ask searching questions about whether the product is truly in consumers’ interest?”

Turner said he was “very concerned” about the euro zone’s sovereign debt crisis, and that the link between banks and state funding problems would have to be cut for the currency bloc to survive.

Legislators should speed up efforts to create a banking union for euro zone banks, giving them direct access to state funds, he said. – Bloomberg