Other banks face probes after Barclays tried to rig lending rates

Thursday 28th June 2012

Barclays has been hit with the FSA’s largest-ever fine of £59.5m. Had it not co-operated with the regulator, its fine would have been 30% more at £85m.

With penalties from American authorities, Barclays faces total fines of £290m.

The punishment is for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR). The FSA has confirmed that there are ongoing investigations, with other banks that may also have been involved in trying to rig lending rates.

Barclays’ breaches encompassed a number of issues, involved a significant number of employees and occurred over a number of years, said the FSA.

It said that Barclays’ misconduct included:

* making submissions which formed part of the LIBOR and EURIBOR setting process that took into account requests from Barclays’ interest rate derivatives traders. These traders were motivated by profit and sought to benefit Barclays’ trading positions.

* seeking to influence the EURIBOR submissions of other banks contributing to the rate setting process.

* reducing its LIBOR submissions during the financial crisis as a result of senior management’s concerns over negative media comment.

Barclays also failed to have adequate systems and controls in place relating to its LIBOR and EURIBOR submissions processes until June 2010 and failed to review its systems and controls at a number of appropriate points.

Barclays also failed to deal with issues relating to its LIBOR submissions when these were escalated to Barclays’ Investment Banking compliance function in 2007 and 2008. 

Tracey McDermott, acting director of enforcement and financial crime, said: “Barclays’ misconduct was serious, widespread and extended over a number of years. 

“The integrity of benchmark reference rates such as LIBOR and EURIBOR is of fundamental importance to both UK and international financial markets. Firms making submissions must not use those submissions as tools to promote their own interests.

“Making submissions to try to benefit trading positions is wholly unacceptable. This was possible because Barclays failed to ensure it had proper controls in place. Barclays’ behaviour threatened the integrity of the rates with the risk of serious harm to other market participants.

“The FSA continues to pursue a number of other significant cross-border investigations in this area and the action we have taken against Barclays should leave firms in no doubt about the serious consequences of this type of failure.” 

The British Bankers Association is currently undertaking a review of the way LIBOR is set and will publish its findings shortly. 

This was a significant cross-border investigation with other agencies including the U.S. Commodity Futures Trading Commission (CFTC), the U.S. Department of Justice (DoJ) together with the Federal Bureau of Investigation (FBI) and the Securities and Exchange Commission (SEC). 

The CFTC brought attempted manipulation and false reporting charges against Barclays for similar failings, which the bank agreed to settle. The CFTC imposed a penalty of $200m. In addition, as part of an agreement with the DOJ, Barclays admitted to its misconduct and agreed to pay a penalty of US$160m.

Barclays boss Bob Diamond and three other executives have agreed to give up their bonuses for this year as a result.

Diamond, who last year received a bonus of £2.7m, said the activities “fell well short of the standards to which Barclays aspires in the conduct of its business”.

Barclays refused to comment on why the executives were forgoing their bonuses for this year and not the previous years spanned by the investigation.

If Barclays was working with other banks to try to fix the interest rates, as the U.S. regulators stated, it remains to be seen what misconduct may have taken place by other banks.