An internal report commissioned by the Financial Services Authority (FSA) revealed rate-rigging, highlighting how the regulator ignored or failed to follow up on a series of problems with the rates. The report, published today, is in response to the aftermath of the Barclays PLC settlement with regulators.

The Wall Street Journal reports that the U.K. based FSA repeatedly failed to act on warnings and signs that banks were attempting to rig interbank lending rates at the hight of the financial crisis. The internal review, published today, highlights 26 specific correspondances between 2007 and 2009 that cites direct references to ‘lowballing’ where banks understand their borrowing costs to make their funding positions look stronger.

FSA’s Poor Management

The FSA report concluded by stating: “The information should have been better managed.” The internal review is the latest in a string of problems for the regulator – which will be disbanded in April. A parliamentary committee recently questioned the FSA’s delayed investigation into rate-rigging, which began nearly two years after U.S. authorities. The FSA’s inaction has severely damaged London’s reputation as a financial center, the committee stated to The Wall Street Journal.

Libor is based on data submitted by large banks, which reflects how much it costs them to borrow money from other banks. During the financial crisis, some banks submitted artificially low data to hide their escalating problems. In addition, some employees at banks sought to manipulate rates to benefit their trading positions.

The FSA has stated in the past that Libor is not a high priority. FSA Chairman Adar Turner said in a statement that, “The FSA had no formal regulatory responsibility for the Libor-submission process,” adding how, “As a result, the FSA did not respond rapidly to clues that lowballing might be occurring.”

While the report mentioned that the FSA received no evidence that traders were rigging the rates for profit – the regulator should have been more proactive before 2008 in contacting the British Bankers’ Association, who oversees several rates.

The report concluded that the FSA had received no evidence that traders were rigging the rates for profit. Nevertheless, the report indicated that the regulator should have been more proactive before 2008 in contacting the British Bankers’ Association, which oversees several rates, to root out problems. The report stated how the FSA “was too narrow” in its handling of information related to Libor.