A witness from the so-called "voice of banking" told a court today there was an "inherent conflict of interest" in Libor's governance, as trial of two ex-Barclays traders rumbles on.
The Serious Fraud Office has claimed Stylianos Contogoulas, 45, and Ryan Reich, 35, played roles in a conspiracy to fix the benchmark rate between 1 June 2005 and 1 September 2007.
At the relevant time, Libor was overseen by the British Bankers' Association (BBA) and, more specifically, the Foreign Exchange and Money Markets Committee, which was made up of staff of the BBA's member banks. The rate was calculated based on a trimmed average from 16 panel banks.
Questioning Sally Scutt, who was an executive at the BBA and is appearing as a witness in the trial, Contogoulas' lawyer James Fletcher remarked: "That produced, did it not, a conflict of interest between the governance of Libor and the BBA."
"I agree that there is an inherent conflict of interest, yes," Scutt replied.
Fletcher went on to point out the committee was the one with the power to sanction the banks on the panel responsible for setting the Libor rate. He later said a bank suspected of putting in improper rates was "unlikely to find itself on the end of a sanction...where its own employees were part of the committee".
Scutt said while "sanction is quite a strong word", the committee did indeed have some disciplinary powers – for example "they could remove someone from a panel".
Fletcher remarked some panel members had flagged to the BBA that "some banks were setting Libor to suit their commercial position".
However, Scutt noted the BBA had passed its observations to the Bank of England, described by her as "the regulators of the markets".
The barrister noted the BBA is a trade body, rather than a regulator, whose purpose is to represent the interests of the financial services sector in the UK. It is funded by subscription fees from members and Fletcher remarked the BBA signed off its letters with the "voice of banking".