UK: LIBOR Scandal: One Year On

Summary and implications

It is approaching one year since the publication of the first regulatory report and large fine against Barclays for alleged LIBOR manipulation in June 2012. Since then, there have been a variety of significant developments in this fast moving area. The purpose of this article is to summarise the key events to date and to look ahead at expected future developments.

What is LIBOR?

LIBOR (the London Interbank Offered Rate) is a benchmark interest rate representing the average that London banks are paying to each other to borrow money in the short term.

In order to calculate LIBOR, a panel of 16 banks submitted estimated interbank interest rates based on various currencies/maturities. The four highest and four lowest submissions were stripped out and an average LIBOR rate calculated across the various currencies/maturities by reference to the eight middle submissions.

LIBOR rates are commonly used as benchmark rates in standard derivative and loan documents. For example, the FSA has estimated that $554 tn over the counter interest rate derivative contracts were linked to LIBOR in 2011.

What alleged manipulation has taken place?

Based on the regulatory findings to date, it is alleged that banks typically sought to manipulate LIBOR rates for two purposes:

  1. By attempting to manipulate LIBOR rates either up or down to benefit the bank's trading positions. The regulatory findings demonstrate that on occasions banks sought to influence both their own submissions and the submissions of third party panel banks to support their own trading positions.
  2. Understating LIBOR submissions during the financial crisis as a result of concerns over negative media comments. A bank submitting higher rates than other panel banks may give the impression that it was viewed by its peers as a high credit risk.

Which banks have been fined to date?

So far, the following banks have reached settlements with the US/UK financial regulators and the US Department of Justice:

  • Barclays (June 2012: combined fine £290m).
  • UBS (December 2012: combined fine £940m).
  • RBS (February 2013: combined fine £390m).

What other investigations are ongoing?

Ongoing investigations include the following:

  • Financial regulators: investigations are being undertaken in various countries (including the UK and the US) against other banks not having been fined to date.
  • Criminal investigations: against individuals working within banks. Whilst the banks to date have entered into agreements avoiding criminal liability, prosecutors can still pursue individuals. The US Department of Justice are investigating various individuals and the UK SFO has recently announced a doubling of its LIBOR team from 30 to 60 people.
  • Competition investigations: the EU Competition Commission is conducting an investigation into alleged LIBOR (and other benchmark rate) manipulation which is due to conclude in 2014.

What changes have taken place to LIBOR?

In September 2012, Sir Martin Wheatley (then managing director of the FSA) published a report on the future of LIBOR. The report concluded that LIBOR should be subject to amendment rather than replacement. Suggested reforms included:

  • transfer of responsibility for overseeing LIBOR preparation from the British Bankers Association to a new independent administrator;
  • new code of conduct for submitting banks;
  • statutory regulation (under the new Financial Conduct Authority); and
  • creation of new criminal offences relating to "benchmarks" such as LIBOR (i.e. section 91 Financial Services Act 2012 in force from 1 April 2013).

What civil litigation has been brought to date?

The first claims for damages against banks for alleged LIBOR manipulation were commenced in the US. These have included a number of class actions. The claims were largely based on alleged breach of anti-trust (competition) law as in the US this provides:

  • for triple damages; and
  • good grounds to achieve class action status.

The US class actions were joined together for the purposes of a preliminary hearing: "In Re LIBOR based financial instruments anti-trust litigation". The defendant banks filed a joint motion to dismiss. In April 2013, the US court decided that claims based on anti-trust breaches were inappropriate as the pooling of LIBOR rates for the purposes of setting a benchmark was a co-operative rather than competitive exercise. Any claims should be brought on the basis of alleged misrepresentation (or possibly fraud) but not a failure to compete.

Therefore, in the US, the first class action skirmish was won by the banks but the claims are likely to be amended and pursued on other grounds.

In the UK, there have been two interim High Court decisions on LIBOR. As the decisions reached conflicting outcomes, both have been referred to the Court of Appeal (and will likely be decided later this year).

In Graiseley Properties Limited v Barclays Bank PLC, Graiseley brought a claim for damages arising from allegedly having been mis-sold certain interest rate swap products (which used LIBOR as a benchmark). Following the publication of the FSA's final notice against Barclays in June 2012, the High Court gave permission for Graiseley to amend its claim to plead fraudulent misrepresentation relying on certain implied representations as to the integrity of LIBOR. In a separate interim hearing the court confirmed that individuals within Barclays should not be granted anonymity in the legal proceedings.

In a subsequent case, Deutsche Bank AG v Unitech Global Limited, Unitech applied to amend its counterclaim to include a claim for misrepresentation based on alleged manipulation of LIBOR. However, the court took the view that the alleged implied representations regarding the integrity of LIBOR were very wide and linking a future payment to LIBOR in a contract should not (of itself) give rise to the representations being alleged by Unitech as to how LIBOR is or would be compiled in the future.

The Court of Appeal will consider the conflicting outcomes in both Graiseley and Unitech later this year.

What are the anticipated key future developments?

Over the coming months it will be interesting to look out for:

  • fines and regulatory reports issued against other banks;
  • criminal charges (in the US and/or UK) against individuals within banks;
  • progress of amended US class actions;
  • outcome of the English Court of Appeal decision in the Graiseley and Unitech cases; and
  • progress of the EU Competition Commission investigation.


The first year since the published findings in the LIBOR scandal has seen significant developments. The topic spans a number of areas (financial regulation; criminal; competition; civil litigation; politics) and raises complex and novel issues.

In particular, it is clear that despite a number of "smoking gun" findings in the published regulatory reports, lawyers are left to grapple with whether and how conduct in attempting to manipulate a benchmark interest rate that relies on submissions from a variety of other banks translates into traditional criminal and civil liability.

The coming year will see many further developments and possibly some answers. However, the unravelling of the LIBOR scandal is likely to continue for some time yet.

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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