RBS fined US$600 million in LIBOR rate rigging scandal

In related actions, RBS Securities Japan agreed to plead guilty to a criminal charge of wire fraud, and RBS plc entered into a deferred prosecution agreement under which it is to continue to cooperate with the U.S. Department of Justice in exchange for the deferral of criminal wire fraud and antitrust charges, and RBS collectively accepted a penalty of $150 million. In addition, the UK’s Financial Services Authority (FSA) issued a final notice imposing a penalty of £87.5 million (approximately US$137 million) against the bank.

The CFTC’s order finds that: between at least mid-2006 and 2010, RBS made hundreds of attempts to manipulate yen and Swiss franc LIBOR, and made false LIBOR submissions to benefit its derivatives and money market trading positions; and, that it aided and abetted other banks’ attempts to manipulate those same rates.

The regulator reports that the misconduct involved more than a dozen RBS derivatives and money market traders, one manager, and multiple offices around the world, including London, Singapore, and Tokyo; and, that the unlawful conduct continued even after RBS traders learned that an investigation had been commenced by the CFTC.

According to the order, RBS derivatives traders also unlawfully worked in concert with a trader from a UBS AG subsidiary in attempts to manipulate Yen LIBOR, and with a trader at another bank in attempts to manipulate Swiss Franc LIBOR. It says the bank also aided and abetted UBS’s attempts to manipulate Yen LIBOR by executing wash trades to generate extra brokerage commissions to compensate two interdealer brokers for assisting UBS in its unlawful manipulative conduct. And, that, on at least one occasion, RBS also requested the assistance of an interdealer broker to influence the submissions of multiple panel banks in an attempt to manipulate Yen LIBOR.

“The integrity of LIBOR depends on truthful information provided by a select group of some of the world’s most important banks. The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank’s LIBOR submissions, trying to manufacture winning trades. That’s what happened at RBS,” said David Meister, the CFTC’s director of enforcement.

@page_break@ With this latest settlement, the CFTC says it has now imposed penalties of more than $1.2 billion on banks for manipulative conduct with respect to LIBOR submissions and other benchmark interest rates, and has required each bank to reform their benchmark submission practices.

“When we talk about the need for a ‘culture shift’ in the financial sector and specifically at large financial institutions, this case shows how ingrained this behavior was in the bank’s culture. Even after all of these Libor cases were being investigated, it is amazing that RBS employees tried to fly above the law. They acted as if they were the masters of the universe and the rules of fair play just didn’t apply,” said CFTC commissioner, Bart Chilton, in a statement.

In a statement, RBS says that “none of the regulators in question concluded that RBS, as a firm, had engaged in any deliberate misconduct. There are no findings that anyone beyond individual traders and, in some instances, their immediate supervisors, was aware of, or instructed, any deliberate manipulation of submissions, nor is there any finding that RBS suppressed LIBOR submissions at the direction of senior management.”

“The RBS board acknowledges that there were serious shortcomings in our systems and controls and also in the integrity of a small group of our employees. This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past,” said Philip Hampton, RBS chairman. “We have to fix the culture in the banking industry. The most important part of that is focusing our efforts on the needs of our customers and acting with integrity. And it also involves facing up to the bank’s past failings, no matter how uncomfortable that is.”

Hampton said those responsible for the violations have either left the bank, or been subject to disciplinary action. And, that the board “has also used all means possible to ensure the gravity of this issue is reflected in the remuneration received by employees.” Additionally, the head of its markets and international banking division is to leave the bank.

RBS stressed that it has offered its full cooperation to regulators, and that it has taken action to strengthen the systems and controls governing its LIBOR submissions. It also said that it is committed to full compliance with regulatory reforms that are currently being contemplated to rate setting standards.