The growing scandal over the rigging of benchmark Libor rates raises a fundamental question: Why didn't Britain's Financial Services Authority see anything was amiss? Mainly because the FSA hadn't policed Libor for years, reports the Wall Street Journal. Worse, bank executives had warned the FSA about Libor violations since 2007, but it took no action until prodded by US regulators in 2010. The FSA even cleared senior Barclays executive Jerry del Missier in 2010 of charges he submitted inaccurate Libor data; del Missier resigned Tuesday in the fallout of the scandal.
FSA chairman Adair Turner says the day-to-day supervision of Libor is actually supposed to be done by the British Bankers' Association trade group, and is beyond the legal domain of the FSA. But with the FSA also missing on JPMorgan Chase's $2 billion loss earlier this year, critics say that ultimate responsibility for the financial system lies with the FSA. The FSA does have one more big loophole to dodge responsibility—it never had a rule in place requiring data submitted to Libor be accurate. "This is a major regulatory failing," said one expert. "It's frankly ridiculous that there wasn't one in place." The FSA's Turner should at least have plenty of opportunities to explain himself, as British lawmakers voted yesterday to open a parliamentary inquiry into the banking industry, reports Reuters.