UK: LIBOR Manipulation Coverage - Investigations And Regulator Action

Last Updated: 3 October 2012
Article by James Cooper

The British Bankers' Association (BBA) appears likely to give up control of oversight of LIBOR, subject to the findings of Wheatley's FSA investigation into whether such oversight should be under the control of regulators. According to press reports, the council of the BBA passed a motion on 13 September to give up control of oversight of LIBOR. Questions have been raised, however, as to which body such responsibility for overseeing the rate should be given, as there may be a conflict of interest with other regulators or the Bank of England.

Royal Bank of Scotland is currently considering disciplinary proceedings against some employees in relation to its LIBOR investigations, including Jezri Mohideen, the bank's head of yen products in Singapore. The bank commenced an internal investigation two years ago, which is ongoing. Regulators are probing certain parts of the bank's business, including money-market traders, the swaps team and the foreign-exchange team. One trader, Tan Chi Min, who was fired for influencing LIBOR, has brought a claim for wrongful dismissal in the Singapore High Court, on the basis that such manipulation was systemic at the bank. Chief Executive, Stephen Hester has said that RBS is likely to need to make big payouts for its role in the rate manipulation scandal.

The Financial Services Authority has appealed for lawmakers to grant it further enforcement powers to investigate market abuse. In a written submission to the Parliamentary Commission on Banking Standards, which is reviewing governance standards in the industry following the LIBOR affair, the FSA asked for an extension to the limitation period for investigations and further powers to temporarily ban senior individuals while they are under investigation. The FSA has also asked for powers to investigate those individuals in organisations who are not necessarily approved by the FSA but whose actions can also have an impact. Further, the FSA wants bankers who assist in setting LIBOR to be added to its register and for those individuals to undergo a 'fit and proper' assessment before assuming specific roles at banks.

Gary Gensler, chairman of the US Commodity Futures Trading Commission, has urged LIBOR to either be changed or replaced. Giving evidence before a panel of the European Parliament, Mr Gensler called for more transparency in benchmark rates. Speaking before the same panel, Michel Barnier, EU Commissioner for Internal Market and Services, said that self-regulation has become untenable, in light of calls by authorities for more stringent oversight of the financial system generally and the setting of LIBOR specifically. Joaquin Almunia, EU Competition Commissioner, also told the panel that anti-trust rules in relation to cartels may have been breached, by both banks and brokers. Mr Almunia said that investigations into these breaches are ongoing and will likely result in substantial fines. There will be a vote on 8 October 2012 by the European Parliament's Economic and Monetary Affairs Committee on proposals for changes in sanctions for market abusers.

The inspector general for the US Troubled Asset Relief Program (TARP), Christy Romero, has said that LIBOR should no longer be used as a benchmark measure for TARP, given the waning industry confidence in LIBOR's reliability. Ms Romero also suggested that other US programs, such as the Treasury Department's Public-Private Investment Program or the Federal Reserve's Asset-Backed Securities Loan Facility, should also use alternative rates.

The European Parliament's Economic and Monetary Affairs Committee has published responses on its website to its consultation on the reform of LIBOR and the Euro Interbank Offered Rate (EURIBOR). This consultation came in light of amendments by the European Commission to the MAD II proposals, in relation to regulation of market abuse and insider dealing. To view the responses, please click here:

Industry Response

Banks, including HSBC, have called for greater review and scrutiny of senior management, and said that more attention needs to be given to behavioural characteristics, especially when individuals are being considered for top positions. This includes developing a 'behavioural monitoring audit' which would consider the personal characteristics of current and/or potential bank bosses, with an aim to ensuring that bosses can show independence in judgement and foster a culture of integrity. HSBC has itself set aside £430 million to settle money laundering allegations.

Business Minister, Vince Cable has said that Bank of England deputy governor, Paul Tucker's chances of taking over the top post at the Bank of England from current Governor, Mervyn King have not been hampered by Mr Tucker's failure to spot the full extent of the LIBOR rate-fixing affair. Other candidates to succeed Mr King are Gus O'Donnell, adviser to Toronto-Dominion bank, Jim O'Neill, chairman of Goldman Sachs' asset management division and Adair Turner, chairman of the FSA.

Barclays coverage


Banks have made proposals to the Parliamentary Commission on Banking Standards as part of a Government review of the banking sector, in response to the rate-fixing scandal. Barclays has suggested that a 'Chartered Institute of Bankers' be created, which would be responsible for maintaining a register of bankers and developing an industry code of conduct. Barclays also said that it was considering proposals for the launch of a hotline operated by an external provider, as an avenue through which whistleblowers might report concerns, as part of Barclays' wider review into its whistleblower procedures. Barclays also proposed a review of current account structures and policies in the UK.


New Barclays' CEO, Antony Jenkins has promised changes to the bank's investment bank and European operations, as part of a review of Barclays' operations to determine future direction and growth. Mr Jenkins has stated that whilst Barclays will remain a global bank, certain businesses, such as the investment bank and European operations, will face challenges going forward, particularly from a 'reputational risk' perspective. The review is said to be an aggressive one and will be unveiled in February 2013.

In the face of these impending changes, Mr Jenkins has received a vote of support from US hedge fund firm, Coherence Capital, which recently purchased bonds issued by Barclays, in the belief that a conservative approach going forward will favour bondholders. Sal Naro, the founder of Coherence, also said that the hedge fund has reduced its position in HSBC in recent weeks in light of increased scrutiny of that bank's operations by authorities.


Martin Wheatley's eagerly anticipated review of LIBOR will be published amidst the usual fanfare on Friday (28 September) this week, namely a keynote speech at Mansion House with an introduction by the Lord Mayor and Greg Clark MP, Financial Secretary to the Treasury. And it is interesting to see in press commentary this week that, from a commercial perspective at least, Barclays appears to be winning over the sell-side again, thanks no doubt to announcements regarding major institutional reforms already underway and an emergence from the LIBOR scandal ahead of the rest of the pack. The shrewd investor base can perhaps already sense an important turnaround at one of the UK's largest banks.

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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