UK: LIBOR Manipulation Press Coverage - August 2013

Last Updated: 18 August 2013
Article by James Cooper

Investigations and regulator action


Until now, LIBOR investigations have targeted the institutions involved rather than individual traders, but this is about to change. In early July 2013, the SFO stated it had worked closely with the FSA (now FCA) during its investigation into LIBOR and was considering whether it was both appropriate and possible to bring criminal prosecutions. It was also aware of investigations in other jurisdictions and was working with the relevant authorities. Shortly after this statement the SFO charged one trader and two former brokers with conspiracy to defraud in relation to the manipulation of LIBOR rates - see more below under 'Litigation'.

US and UK authorities originally envisioned bringing both civil and criminal charges against individual traders following the settlements reached with their banks. However, investigations have proceeded much more slowly than expected owing to the complexity of LIBOR, and the difficulties of coordinating amongst authorities in multiple jurisdictions.

This does not mean investigations into institutions have ended. In a speech in June 2013 Tracey McDermott, the FCA director of enforcement and financial crime, confirmed that the FCA will continue to focus on LIBOR. There is press coverage suggesting that between 5-7 banks are being targeted by the FCA, but this has not been officially confirmed. So far the FSA (as it then was) has fined three banks: Barclays GBP 59.5 million in June 2012, UBS GBP 160 million in December 2012 and Royal Bank of Scotland (RBS) GBP 87.5 million in February 2013.

RBS has agreed to provide the Canadian Competition Bureau with documents requested in relation to the ongoing LIBOR investigation in Canada. RBS had previously launched a legal challenge against its demand for the documents, and the bank has not stated why it has dropped the legal challenge.

Following an 11-month investigation into rate-manipulation activities, the Monetary Authority of Singapore, a part of the Singapore Foreign Exchange Market Committee (SFEMC), issued censures to 20 banks for SIBOR rate-manipulation by 133 traders. It also ordered them to ring fence USD 9.6 billion collectively at zero interest to be held by the Central Bank for a year, in order to strengthen internal controls. SFEMC will not be imposing criminal sanctions at this time, but said that it will make rates-manipulation a criminal offence in future, and is bringing the monitoring of rate-setting under its own jurisdiction. Singapore is also overhauling its rate-setting system, and it will be one of the first countries to start using real trading data as opposed to estimates and submissions from traders in order to set rates.

The Hong Kong Monetary Authority (HKMA) has announced that they are expanding their investigation into the manipulation of HIBOR rates. Initially investigations focused solely on Swiss bank UBS, but HKMA will now look into other banks, although it won't announce at this time which banks.

According to a statement published in July, the Japanese Bankers' Association is to tighten supervision of Japan's interbank lending market, forming part of a trend of regulatory reaction worldwide to the global LIBOR scandal (although there has been no proven case of Tokyo's interbank offered rate (TIBOR) manipulation to date). Part of the TIBOR overhaul will include revised rules and a formal code of ethics that banks must observe when making submissions. It will also establish an independent monitoring body to oversee the operation of the process and related administration.

Regulator action

A subsidiary of the New York Stock Exchange Euronext (NYSE Euronext Rate Administration Ltd) will replace a subsidiary of the British Bankers' Association (BBA LIBOR Ltd) in the administration of LIBOR from January 2014. This meets one of the principle recommendations of the Wheatley Review of LIBOR which recommended

"The BBA should transfer responsibility for LIBOR to a new administrator, who will be responsible for compiling and distributing the rate, as well as providing credible internal governance and oversight. This should be achieved through a tender process to be run by an independent committee convened by the regulatory authorities."

NSYE Euronext Rate Administration Ltd will be regulated in the UK by the FCA.

In the meantime BBA LIBOR Ltd, as the interim benchmark administrator published an interim Code of Conduct which was accepted as industry guidance by the FCA on 12 July 2013. It has also published its Whistle Blowing policy, which outlines how concerns about perceived irregularities in conduct relating to the administration of LIBOR and/ or LIBOR submissions can be raised. Both documents are available on the BBA's website.

Guidance on the principles relating to benchmarks has been provided at both International and European level following respective consultations.

The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published a final report in June 2013 containing a set of principles for setting benchmarks. The principles cover all stages of the benchmark process eg, data submission, administration, calculation, publication, the continuity of benchmarks and the use of them. ESMA and EBA note in their introductory paragraph in the final report that they consider it is

"important that these Principles are implemented not only by all market participants, with the aim of reinforcing the robustness of the procedures, ensuring a minimal level of transparency to the public and creating a level-playing field, but also by Supervisory Authorities in their supervisory practices, where relevant and possible."

In July the International Organisation of Securities Commissions (IOSCO) published its Final Report setting out principles for financial benchmarks. These principles provide an overarching framework of principles for benchmarks used in the financial markets. They are aimed at administrators and other relevant bodies as they provide guidance relating to governance, benchmark quality, the quality of the methodology and accountability mechanisms. Under the guidelines Benchmark administrators must publicly disclose their compliance with the principles within twelve months of the publication of the report, with the intention of IOSCO reviewing within an 18 month period the extent to which the principles have been implemented. A copy of the Principles can be found on the IOSCO website.

There have been suggestions in the press that the European Commission is considering whether or not to give ESMA oversight of LIBOR in future. This would take it away from the FCA. However, neither ESMA, or the FCA have commented on this proposal.

Other financial benchmark rates investigations

The US Federal Trade Commission (FTC) has opened a formal investigation into the process for setting prices for crude oil and petroleum products. This follows a similar investigation currently ongoing by regulators in the European Union. The investigation is expected to branch off into multiple jurisdictions, in the same manner as LIBOR investigations. This investigation also marks the third global investigation into pricing benchmarks, after LIBOR and ISDAFix.

Price assessments to reporting agencies for certain key metals are being withheld by traders in the wake of the LIBOR scandal and the European Commission's (EC) proposed regulatory framework for benchmarks (in September 2012 the EC published a consultation document seeking views on issues relevant to a possible framework for the regulation and production and use of indices serving as benchmarks in both financial and other contracts. The consultation closed in November 2012 and a summary of responses was published in January 2013. The expected publication date for the EC's proposed legislation for a framework on benchmarks is September 2013). Although the focus of the proposed framework is on LIBOR and the more widely used oil indexes, the metals market is unsettled as some take the view that metal benchmarks are especially vulnerable to charges of "manipulation".

Industry response

The LIBOR move to New York has generated some scepticism. NYSE currently administers London International Financial Futures and Options Exchange (LIFFE), Europe's second largest derivatives exchange, some of which are tied to LIBOR and LIBOR-related benchmarks. Whilst NYSE's profitability depends on LIBOR's continued credibility (a good thing as the administrators of the benchmark), it also creates a conflict in that, as the new owners, they may be less motivated to undertake a complete overhaul of the system. Indeed, the NYSE has indicated that, other than adding some additional safeguards, the system will remain the same.

Commentators have observed that any transfer of the oversight of LIBOR from the UK's FCA to the Paris-based ESMA would be purely symbolic, but makes little sense pragmatically. If regulatory oversight shifts to Paris, ESMA may not have the power or resources to intervene directly; it would have to rely on the FCA to assist. Structurally, very little would change, other than Martin Wheatley - the FCA's chief executive - would report to Verena Ross, the executive director at ESMA. One significant change, however, is in relation to regulatory powers of compulsion: currently the FCA only has an "emergency power" to force banks to make submissions in certain circumstances, whereas there are proposals by the ESMA to oblige banks to make submissions for key rates.


Against individuals

Following its investigation into the manipulation of LIBOR, the SFO announced in June and July that it had:

  • Charged a former yen LIBOR trader at UBS and Citigoup (Tom Hayes) with eight counts of fraud. He has also been charged by the US Justice Department who is running a parallel investigation
  • Charged two former brokers at RP Martin Holdings Ltd (Terry Farr and James Gilmour) with conspiracy to defraud

These three individuals were arrested by the SFO in relation to LIBOR in December 2012. To date, they are the only individuals who have been charged with criminal offences in relation to the LIBOR manipulation scandal in the UK.

Against institutions

On 25 June, the Regents of the University of California launched an anti-trust claim against more than a dozen banks including Barclays and Bank of America for alleged LIBOR manipulation. The claim was filed in a federal court in San Francisco and accuses the banks of fraud, deceit and unjust enrichment, amongst other things. The claim seeks unspecified damages in respect of inflated interest rate payments and artificially depressed returns on the University of California's LIBOR-linked investments.

Deutsche Bank has been sued for wrongful termination by five ex-employees who were fired in connection with the bank's internal investigation into LIBOR manipulation. The former employees suing the bank consist of two managing directors, two directors and a vice president. One of the claimants has already settled in a confidential settlement with the bank, although the other four continue to pursue the claim. The bank has dismissed at least seven employees in relation to the LIBOR scandal.

A number of municipalities are suing for financial losses incurred as a result of the manipulation of LIBOR, more specifically for either or both receiving artificially low rates and paying artificially high rates on municipal investments for example:

  • City of Houston filed lawsuits in the Southern District of Texas against 16 international banks including Barclays, Bank of America and Citigroup
  • City of Philadelphia issued lawsuits in the Pennsylvania Federal Court against nine banks and several subsidiaries. The banks named are Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, Royal Bank of Canada, RBS and UB AG
  • Baltimore filed a federal lawsuit in Manhattan against several major banks including JP Morgan, Bank of America, Barclays, Citigroup and Deutsche Bank

Others include the California Counties of San Diego and Sacramento, and County of Sonoma, San Francisco.


A corner seems to have turned on both a regulatory and investigatory level. The BBA has published an interim code of conduct and a whistle blowing policy whilst it remains the administrator of LIBOR (in January 2014 NSYE Euronext takes over this task). Frameworks setting out the principles for benchmarks at both European and International level have been, or are about to be, introduced, and there is speculation that the ESMA may be given oversight of LIBOR in the future. In the meantime investigations by regulatory authorities across the globe extend and/or reach the prosecution stage. The FCA has indicated it is looking at a number of other banks after its initial round of fines. The Singapore Foreign Exchange Market Committee, Hong Kong Monetary Authority and Japanese Bankers' Association make statements about the steps taken in relation to their own rates (SIBOR, HIBOR and TIBOR). The US Federal Trade Commission casts its eye on the process for setting prices for crude oil and petroleum products on the back of the EU's similar investigations. In the UK a trader and two brokers are the first individuals to be charged for offences arising out of LIBOR manipulation, whilst in the US a number of municipalities file lawsuits against multiple banks for financial losses arising out of the manipulation of LIBOR.

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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