UK: Professional & Financial Lines (LIBOR manipulation coverage) - August 2012

Last Updated: 4 September 2012
Article by James Cooper

LIBOR manipulation coverage

Treasury Select Committee Report

The Treasury Select Committee's rate-fixing investigation revealed a "deeply wrong" culture at Barclays, stating that the "attempted manipulation of LIBOR should not be dismissed as being only the behaviour of a small group of rogue traders." The MPs criticised Barclays for exhibiting serious failures of internal governance which allowed weak compliance and controls procedures, and stated that the rate-fixing had been systematic.

The Committee's report also criticised the FSA for its inadequate monitoring of the financial services market in the UK, noting that the US regulatory investigation into rate-fixing commenced a full two years prior to the one in the UK. The 122-page report stated that this delay contributed to the perception of "weakness" in London's financial regulation. The FSA has responded that Martin Wheatley, FSA Managing Director, will address the issues raised in the report in his review of LIBOR due to be published in September.

In addition to Mr Wheatley's report, Andrew Tyrie, the Treasury Select Committee's Chairman, is developing with a separate panel of lawmakers alternative proposals to regulate the financial sector, which are expected to be published by December 2012.

Regulatory Investigations

Analysts expect RBS to settle with regulators in the US and the UK over the rate-fixing scandal before the end of the year.

Labour MP John Mann has said that he expects that RBS will incur a larger fine than the one handed to Barclays in June. Mr Mann has also accused the government of hiding the scale of RBS' involvement in the scandal, and any potential fine it could face, for political reasons since 82 per cent of the bank belongs to taxpayers. He stated: "there is an obvious Government advantage in allowing Barclays to take the full flak and let RBS sneak in later."

International Investigations

Hong Kong Monetary Authority Chief Executive Norman Chan stated that the Monetary Authority would have to reassess its current investigation of HIBOR, in light of the UK investigations.

Tan Chi Min, a former RBS trader, has revealed through court documents filed in Singapore, how traders at the bank attempted to manipulate LIBOR rates and stated that minutes of RBS meetings deliberately omitted discussions of LIBOR rate submissions. The former head of delta trading is suing RBS for wrongful dismissal after being fired from a Singapore-based division of the bank in November 2011.

The US has recently opened up its own investigation into RBS. Eric Schneiderman, a New York State Attorney General, has requested documents from RBS, and he is joined by George Jespen, Connecticut's Attorney General, who has opened his own LIBOR investigation. As well as British and American investigations, several other countries are looking into LIBOR-rigging issues, including Canada and Japan.

Members of the EU Parliament are seeking to establish how to avoid a repeat of the rate-fixing scandal. The EU Economic and Monetary Affairs Committee (ECON) will hold a hearing on 24 September 2012 to determine how to eradicate abuse of interbank lending rates and other market indices such as LIBOR and EURIBOR, in the context of responding to the ongoing MAD II review. An ECON questionnaire has been published, comments to which are requested by 17 September 2012.

Barclays coverage

Investigations and Treasury Committee Report

In the Treasury Committee report on the Barclays LIBOR-manipulation investigation, MPs admit that Barclays did face a "first mover" disadvantage. The report also states that parts of the testimonies given by Mr Diamond, Mr Del Missier and Mr Tucker were "neither relevant nor convincing." The report states: "having heard the evidence of Mr Diamond and the FSA [...] the Committee prefers the evidence of the FSA."

Regulatory sources in the City have refuted claims that Bob Diamond was forced from his position at the bank to appease the public, but rather because he was a threat to the stability of the bank.

Barclays' internal LIBOR review

Barclays has announced the appointment of Russell Collins to lead a review of the bank's business practices prompted by the LIBOR manipulation scandal. The review will be headed by ex-City lawyer, Anthony Salz. The Boston Consulting Group has been named as principal professional services provider.

Mr Collins is a former partner and UK vice chairman of Deloitte, and has more than 30 years' experience in advising and auditing financial institutions. In addition, Mr Collins was previously chair of the Financial Services Practitioners Panel which advised the FSA on banking sector regulation and practices.

Comment

This week has seen a raft of further commentary across the City on the subject of LIBOR manipulation. Barclays is currently embroiled in a fresh enquiry by the Serious Fraud Office regarding payments between the bank and Qatar Holding LLC, part of a Qatari sovereign wealth fund, the subject of which is outside scope for further comment here. The new Barclays Chief Executive, recently announced as Antony Jenkins who runs the global Retail and Business Banking part of the outfit, takes the helm at an incredibly difficult time which has seen the reputation of Barclays seriously damaged. Some commentators have opined that the appointment of Mr Jenkins appears to signal a move back to the bank's "retail banking roots". Only time will tell whether this is true or not, particularly given that wholesale reform to UK banking is already being considered under the Banking Reform Bill, however we can be sure of one thing: that with the spotlight, or rather 'international' spotlights, on the subject of LIBOR, the current methods of benchmark-setting will soon be a thing of the past.

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.

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