Worldwide: Professional & Financial Lines (August 2012)

Last Updated: 20 August 2012
Article by James Cooper

LIBOR Manipulation Coverage

Criminal Investigations

The Wall Street Journal has reported that U.S Prosecutors have offered several former junior UBS AG employees protection from criminal charges in exchange for their cooperation with the expanding probe into alleged interest-rate manipulation. The paper said that a few UBS employees under investigation still work at the Swiss bank, which fired or suspended about 20 managers and traders during the four-year investigation. U.S antitrust officials have been investigating alleged interest rate manipulation by at least 16 banks, including Libor, and UBS is said to be one of the main targets of the regulators. UBS has disclosed that it has received leniency deals from antitrust regulators in the U.S, Switzerland and Canada, but still faces potential enforcement action from the U.S Justice Department's fraud section, the U.S Commodity Futures Trading Commission and the U.K's FSA.

The Serious Fraud Office ("SFO") has begun a criminal investigation into the Libor scandal, but the Treasury has not given it a fixed budget and will make money available to the SFO in instalments based upon how the investigation is progressing. This comes after Sir John Thomas, president of the Queen's Bench Division, said that the SFO lacked the resources to do its job effectively. The SFO agreed to take on the Libor case last month, in the wake of disclosures that the rate at which banks lend to each other had been manipulated. Danny Alexander, Chief Secretary to the Treasury, has said "I want the SFO to follow the evidence wherever it goes to bring prosecutions if it possibly can".

Regulatory Investigations

Mitsubishi UFL Financial Group has said its banking unit suspended a London-based employee, the third worker in a month, as UK authorities investigate suspected manipulation of Libor rates. Hironori Imafuku said that the worker had been asked to stay at home, without naming the employee or giving further details. A source commented that the employee was being questioned by the FSA after allegedly being contacted by others to participate in the rate manipulation after 2008. This comes after the Bank of Tokyo-Mitsubishi ("BTMU") said on 10 July that it had suspended two traders in London in relation to the Libor investigation. At that time, the bank said their suspension was not connected with their conduct at the Japanese bank. According to the FSA register, the traders worked together at the Dutch bank Rabobank before joining BTMU.

The Financial Times has reported that a trader at the centre of rate-manipulation allegations levelled at Barclays communicated with counterparts at the Dutch bank Rabobank. Barclays was the first bank to settle its part in the Libor and Euribor probe. The Dutch central bank is currently examining submissions to Euribor, the Brussels inter-bank lending rate. The Dutch involvement adds to at least 10 other regulators and criminal prosecutions across three continents that are probing as many as 20 financial institutions. Barclays and Rabobank are among seven defendants names in a class action alleging Euribor manipulation filed in New York.

Regulatory News

Martin Wheatley, chair of the government's independent review on the regulation of Libor, has launched a discussion paper which examines how Libor is set and regulated. The paper sets out a range of initial proposals for reform including pegging the rate to actual market data rather than subjective submissions from Banks and introducing criminal sanctions for those attempting to manipulate Libor. Wheatley, the Managing Director of the Financial Services Authority, said that the aim of the review is to ensure that Libor is reformed in a way which fully restores credibility and trust. Wheatley explained that whilst there will be change it will not be changed so far so that millions of contracts are put at risk and that the medium term goal is to fix Libor and then see "whether there are better rates going forward". Wheatley added that the review may also have implications for other financial benchmarks including, oil, gold and other commodity prices in the future. Interested parties have four weeks to respond to the paper, with Wheatley scheduled to deliver his findings by the end of September. Wheatley's report will form the basis for amendments to legislation currently being discussed in the House of Lords.

South Korean regulators are set to overhaul the system used to calculate loan rates, prompted by a high-profile probe which has been locally named "Korea's Libor scandal". The domestic competition watchdog is currently investigating 19 financial institutions, including a subsidiary of Standard Chartered, over suspicions they may have colluded to manipulate the benchmark rate. The regulator has launched a taskforce to overhaul the certificates of deposit rate benchmark system. The rate calculates the interest paid on $300bn of household and business loans, and had hardly moved over the previous three months as other rates fell. Banks under investigation include leading names such as Woori and Shinhan.

Commercial News

Bank of England Governor Mervyn King has commented on the future of Libor, and said that the financial crisis has meant that there was no longer a common interbank lending rate as funding costs were now being determined by the credit risk associated with individual banks. King said that "the fundamental question that people need to face is, 'Does it makes sense to place hundreds of billions of dollars and pounds of transactions on linking to something that doesn't actually exist?'. "That may lead people to think about the overnight policy rate, a rate which always does exist". King also criticised New York regulator Benjamin Lawsky for failing to coordinate the announcement of the probe into Standard Chartered Plc over alleged violation of money laundering laws. King compared the Standard Chartered investigation to the Libor investigation and fine levied on Barclays by U.S and U.K authorities, which saw the coordinated publication of reports which came out after the investigation was completed.

The Bank of Japan has announced that it will delay lending U.S dollars under a scheme to support growth industries because of expected changes to the Libor. Authorities in the U.K and the U.S are formulating proposals that could change the way interbank rates are calculated. The funds were originally due to be lent at a rate equal to six-month dollar Libor. The BoJ has said that it aims to start funding the scheme as soon as possible, but the timing will depend on the progress of Libor reforms this autumn.

The potential amount of industry settlement related to the Libor scandal has been estimated to be US$35bn, across the European panel banks. This is in comparison to direct damages such as fines levied against the banks, which Keefe, Bruyette & Woods ("KBW") estimate to be manageable in their report of 16 July 2012. KBW have noted that large class action lawsuits commonly take between 5 to 8 years from filing to settlement, which would provide time for even the most impacted banks to increase their capital ratios prior to any potential settlement.

Litigation & Costs

A Manhattan federal judge has ruled that investors suing banks over Libor rate manipulation may refer to last month's settlement involving Barclays Plc as they seek to fend off the bank's requests to dismiss the claims. U.S District Judge, Naomi Reice Buchwald, has also suspended several new lawsuits that allege banks rigged key interest rates, saying that "while parties are free to file new complaints - and, indeed, are encouraged by the court to do so if they do so promptly...I am imposing a stay on any action that is not the subject of a pending motion to dismiss...this stay will last until the current motions to dismiss are resolved". The current class action claims are consolidated under In Re: Libor-Based Financial Instruments Antitrust Litigation, U.S District Court for the Southern District of New York.

Barclays coverage

Investigations

Barclays has failed in an attempt to delay a legal claim over allegations it mis-sold an interest rate hedge to Guardian Care Homes. Barclays had requested that the case be delayed until Guardian's claim had been investigated as part of a FSA compensation scheme. Judge Simon Brown QC rejected the request, describing it as an "impossible arguments". Guardian's claim is being heard at Birmingham Mercantile Court, and is seen as an important test case for the thousands of businesses that have potentially been mis-sold complex interest rate derivatives by banks including Barclays, HSBS, Lloyds and RBS. The claim also contains specific allegations that Barclay's attempts to manipulate Libor cost it thousands of pounds in extra payments.

In response to the decision, Gary Hartland, chief executive of Guardian Care Homes, said that "today was a cynical attempt by Barclays to avoid responding to the allegations they face both with swap mis-selling, but also Libor. To say that the FSA redress scheme is in a position to provide us with fair justice is laughable and I am delighted the Court has recognised that".

A spokesman for Barclays said "at the current time it is unclear whether Guardian Care would be within the parameters of the FSA review. As a result, whilst the bank has a claim against Guardian Care Homes which is of greater value than their claim against us and normally these claims would run together, because of the FSA agreement we are unable to do this. Therefore we were seeking to pause these proceedings whilst Guardian Care's eligibility is determined so that the claims could run in tandem if Guardian Care were not eligible. Therefore a pause in proceedings would have saved the court's time".

Business News

Barclays has named former Bank of England executive director David Walker as Chairman. Walker replaces Marcus Aguis who resigned as a result of the Libor scandal. Walker is a senior adviser to Morgan Stanley and oversaw the 2009 government inquiry into the rules governing how banks are run for former Prime Minster Gordon Brown. Walker, who is due to start on 1 November 2012, said that he wants to review the way Barclays operates and that he agrees in principle with customers paying to use current accounts. Walker said that he will start searching for a new Chief Executive within days. Gary Hoffman, the former Chief Executive of Northern Rock, has been linked to the position. Walker and Hoffman worked closely together at NBNK.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions