Financial Market Manipulation, Whistleblowing, and the Common Good: Evidence from the LIBOR Scandal

The LIBOR (London Interbank Offered Rate) scandal, which led to the prosecution of both financial institutions and individuals for manipulating the primary interest rate benchmark in global financial markets, shows that the current top-down approaches to regulatory rule enforcement cannot prevent or adequately detect financial market abuse. We argue that a bottom-up approach, which relies on individuals acting in the interest of the common good, may be more effective in organizational environments that are duty- as well as incentive-based. This approach encourages individuals to accept a degree of moral responsibility for their actions, and to some extent for the actions of others. We argue that properly motivated and instructed individuals can think and act better than they might otherwise do, despite behavioural biases. Nonetheless, there are circumstances under which the prevention of market manipulation may not ultimately serve the common good.