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The London interbank offered rate
("LIBOR") is currently in the news due
to a rate manipulation scandal that erupted in the
UK. The scandal looks likely to have an impact
on a variety of financial entities.
As matters stand, lawyers are dealing with a steady stream of
queries about the potential investor impact and class actions in
the US are apparently being progressed. In addition,
regulators in both the US and the UK are currently investigating
the manipulation, a parliamentary enquiry is underway, there are
rumours of criminal charges being brought and Barclays has agreed
to pay fines valuing £290 million to various regulatory
bodies.
The principal challenges currently being encountered by the
majority of the banks involved include carrying out initial
preparations for the potential deluge of claims, dealing with the
on-going allegations and endeavouring to clarify where potential
liabilities, if any, might arise. In that latter respect,
commentators have been quick to point out that LIBOR calculations
automatically discard the four highest and four lowest bank
submissions and average out the remaining LIBOR submissions to
assess the final rates each day. As such, it may well be
that, whilst the participants in the manipulation presumably saw
the strategy as a promising one, ultimately their submissions may
have had little or no impact, which has led such commentators to
the view that potential claims against them may be limited.
However, on the basis that there are a multiple range of
potential claimants (for example counterparties to relevant
contracts, claimants relying on a multitude of alleged breaches
relevant to LIBOR calculations and/or shareholders basing claims on
incorrect share prices arguably connected to the rate manipulation)
it seems very likely that some claims will be advanced.
The rate manipulation scandal also raises important questions of
competition/antitrust law. Competition law, broadly, prohibits
anti-competitive arrangements between 'undertakings'
which have, as either their object of effect, the prevention,
restriction or distortion of competition. Established competition
law jurisprudence makes it clear that competition regulators are
prepared to tackle both direct collusion between undertakings and
also collusion facilitated through third parties (so called
'hub and spoke' collusion). Undertakings can face
fines of up to 10 per cent of worldwide turnover for violation of
the competition laws. Further, if the competition regulators
ultimately find that banks have acted in violation of the
prohibition on anti-competitive arrangements, that decision will be
binding in private actions for damages by those who have suffered
as a result. The competition investigation appears to be
gathering pace, with EU Competition Commissioner Almunia indicating
recently that he was increasing the allocation of resources to the
case.
In conclusion, therefore, the unfolding LIBOR manipulation
scandal has generated a myriad of potential legal issues. These
include both the potential for civil litigation as well as further
action by applicable regulators. The extent to which litigation
will ensue in practice remains to be seen but as additional details
regarding the scale of the manipulation become apparent through the
on-going regulatory investigations, potential litigants will be
better able to assess their position and the potential to pursue
any right of action arising from this.
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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