UK Treasury faces questions about LIBOR funding allocation

Maria Nikolova

All LIBOR fines received from the Financial Conduct Authority have been committed, Elizabeth Truss says.

London

Whereas regulators mull how to replace the London Interbank Offered Rate (Libor) with alternative rates, questions remain around the way LIBOR funds are allocated.

Steve Reed, a Labour MP, has asked the Chancellor of the Exchequer, how much LIBOR funding he has yet to allocate.

The reply by Rt Hon Elizabeth Truss MP, Chief Secretary to the Treasury, officially published on Monday, July 23rd, goes as follows:

“The LIBOR grant scheme was closed following the announcement of the final tranche of funding at Autumn Budget 2017. All LIBOR fines received from the Financial Conduct Authority have been committed”.

The volume of such questions has markedly grown after the publication of a report entitled “Investigation into the management of the Libor Fund” by the UK National Audit Office (NAO) in September last year.

Let’s recall that the LIBOR fund was established after an international investigation beginning in 2012 into Libor revealed that several banks in the United States and the European Union, including the UK, had manipulated Libor for profit. UK regulators fined the banks a total of £688 million. In 2012, the then Chancellor pledged that “the multi-million pound fines paid by banks and others who break the rules will go to the benefit of the public and not to other banks”.

In 2013, an investigation was launched into allegations that dealers were manipulating exchange rates. Six banks were fined £6.3 billion in 2015. This included fines of £1.5 billion for Barclays by five international regulators, of which £284 million was issued by the UK’s Financial Conduct Authority. In June 2015 the Chancellor added this £284 million fine for manipulation of foreign exchange markets (Forex) to the Libor Fund. This brought the total available in the Fund to £973 million.

The report said the remaining £40 million of the fund is held by HM Treasury but had not yet been committed to any particular scheme.

The report made some rather critical remarks. For instance, the report said it was not clear whether the Department for Education used the Libor fund money to deliver apprenticeships, as promised. DfE has not pursued a specific policy to deliver apprenticeships to previously unemployed 22–24 year olds and it cannot demonstrate whether 50,000 new apprenticeships for this group have been provided. It is not possible to distinguish the impact of the £200 million Libor fund spending from the performance of the overall apprenticeship program.

The report concluded that the UK Government could not confirm that all the money had been used as intended.

Elizabeth Truss’s answer was not very elaborate, so more questions may follow.

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