It wasn't so much the method that made the Libor scandal stand out, but the sheer scale of it all. Libor -London Interbank Offered Rate - involves major banks based in London giving an estimation of the interest rate they would charge other banks for borrowing. This average interest rate has global importance as it is used to help set short term interest rates everywhere. The scam - called the biggest in history by a professor of finance at MIT - involved lying about interest rates in order to turn a profit or to seem more creditworthy.
Market abuses like Libor helped to precipitate and exacerbate the economic crisis that has beset the world over the last few years. Yet, while the victims of this sort of fraud can be measured in millions and damages in billions, convictions remain only too rare and sentences are often lenient, considering the scale of the crimes.
It gets trickier in Europe where legislation and penalties vary from country to country. Some EU states don't even recognise some financial crimes. New legislation aims to rectify this. Under new rules approved by the European Parliament on 4 February, those found guilty of serious financial crimes face tougher penalties. It covers crimes such as unlawful disclosure of information, insider dealing or market manipulation as well as inciting, aiding or abetting them. Judges would be obliged to impose minimum sentences for the most serious crimes. For insider dealing and market manipulation this would mean at least four years in prison and for unlawful disclosure of information no less than two years behind bars. Member states would be free to set even tougher minimum sentences if they wished.
Deterring market abuse is not the only aim of the legislation. It's also about restoring confidence in the financial markets and better protecting investors.
Once the draft rules have also been approved by the Council of Ministers, EU member states will have 24 months to transpose them into national legislation.
Photo copyright Mark Strozier (released under Creative Commons licence)