The three most vocal regulators at the CFTC have issued statements on their historic settlement with UBS over Libor-rigging. The settlement amounted to $1.5 billion.
CFTC Chairman Gensler on UBS Penalty
“Regrettably,” said CFTC chairman Gary Gensler, “with the announcement today of the CFTC findings against UBS, we have yet another blatant example of what bad actors can do when a benchmark rate’s underlying market becomes virtually nonexistent.”
Gensler justified the historic penalty by making reference to one of his standbys: observable transactions. Here he drives home the necessity of benchmark rates:
I believe that to ensure that a benchmark rate is reliable and has integrity, it should be anchored in real, observable transactions. When a benchmark is separated from real transactions, it is vulnerable to misconduct. Benchmark rates should be an honest reflection of market prices. Whether taking out a student loan, a small business loan or a mortgage, or putting savings in a money market fund, the American public depends on the honesty of benchmark rates.
Commissioner Bart Chilton, for his part, spoke of the historic settlement as a deterrent for future violations.
This $700 million settlement is the granddaddy of CFTC penalties. Combined with other regulator settlements, UBS will pay $1.5 billion. Even for a mega-bank, that amount serves as a direct deterrent. It serves as a deterrent not only for UBS, but for the biggest of the big schemers in the financial world.
Chilton has lately spoken out about the need for stronger financial penalties, especially with regard to a recent $1.5 million fine for rogue trading, which he argued should have been sixty times higher.
For his part, CFTC Commissioner Scott O’Malia stuck to his support of the settlement terms. O’Malia did however make mention of his opinion that a “transactional” solution is the most market-friendly preventative for future rate-rigging.
In the wake of a series of scandals involving these benchmarks, I urge U.S and international regulators to implement a comprehensive transaction-based solution to assessing the accuracy of such rates to ensure integrity of global financial markets.