British Regulator to Increase Scrutiny of Controls on Benchmark Rates

Hazel Thompson for The New York Times

LONDON - The Financial Conduct Authority of Britain said on Monday that it would review the efforts investment banks are making to prevent manipulation of key benchmarks.

The initiative was announced as part of the agency's business plan, in which it is seeking an increase of its budget to 452 million pounds, or about $752 million, for the 2014-15 fiscal year. The regulator had a budget of £445.7 million in the 2013-14 fiscal year.

The discovery that some banks colluded to manipulate the London interbank offered rate, or Libor, and other benchmark interest rates two years ago has cast a black mark on banks and cost the industry billions of dollars in fines and other penalties.

As a result, the Financial Conduct Authority and other regulators have stepped up efforts to root out potential manipulation of benchmarks, ranging from interest rates to currencies.

'The global financial crisis may be receding but industrywide culture change does not happen overnight,' Martin Wheatley, the authority's chief executive, said in a statement.

The Financial Conduct Authority was formed last year after the Financial Services Authority was broken into two agencies. In the second year of its existence, the regulator 'must push for this culture change to feed through from trading floors to high street bank branches - all firms must continue to put the best interests of their consumers at the heart of their business models,' Mr. Wheatley said.

As part of its review, the authority said it planned to review how investment banks controlled the flow of information internally, potential conflicts of interests within financial institutions and internal controls on traders in relation to global benchmarks.

'We will increase the intensity with which we supervise wholesale conduct to ensure transactions between more sophisticated market participants do not have a harmful impact on market integrity,' the regulator said. 'Through this we will also help prevent risks from the wholesale markets causing harm to retail consumers.'

On Friday, the Financial Conduct Authority found itself in the hot seat after news reports in London said it planned a broad review of how the industry was treating long-standing life insurance customers in so-called closed accounts - insurance products that are no longer open to new business.

The news sent shares of British life insurers down broadly and forced the regulator to clarify its plans twice on Friday. The Financial Conduct Authority's board said late on Friday that it would hire a law firm to investigate how the regulator handled the issue.

The Financial Conduct Authority clarified on Friday that it would work with the industry to undertake the review of a representative sample of firms.

'We are not planning to individually review 30 million policies, nor do we intend to look at removing exit fees from those policies providing they were compliant at the time,' the regulator said on Friday. 'This is not a review of the sales practices for these legacy customers and we are not looking at applying current standards retrospectively - for example on exit charges.'

Beginning this year, the Financial Conduct Authority also will take on responsibility for regulating the consumer credit industry, including short-term lenders. That will include a review of financial promotions and the treatment of consumers who are in financial difficulty, the regulator said.

'Taking on the regulation of consumer credit is an enormous task which effectively doubles the number of firms that we regulate,' Mr. Wheatley said. 'Using our new power we want to tackle harm to consumers who are most at risk and our work will focus on protecting vulnerable consumers.'

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