U.S. and British authorities Wednesday announced huge penalties against British bank Barclays for its attempted manipulation of the key benchmark interest rates, the London Interbank Offered Rate (LIBOR) and Euribor.
The U.S. Commodity Futures Trading Commission has issued an order settling charges against Barclays plc, Barclays Bank plc, and Barclays Capital Inc., which includes a US$200 million fine, a directive to cease and desist from further violations and to improve internal controls. Barclays also agreed to pay a $160 million penalty as part of an agreement with the U.S. Justice Department; and the UK’s Financial Services Authority imposed a penalty of £59.5 million (US$92.7 million) against the bank, the largest fine it has ever handed down.
The CFTC order finds that Barclays attempted to manipulate and made false reports concerning two global benchmark interest rates, LIBOR and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as early as 2005. According to the order, the manipulation aimed to benefit the bank’s derivatives trading positions by either increasing its profits or minimizing its losses. “This conduct occurred regularly and was pervasive,” it says.
And, it says, the attempts to manipulate included Barclays traders asking other banks to assist in manipulating Euribor, as well as Barclays aiding attempts by other banks to manipulate U.S. Dollar LIBOR and Euribor.
The order also finds that throughout the global financial crisis in late August 2007 through early 2009, as a result of instructions from Barclays senior management, the bank routinely made artificially low LIBOR submissions to protect its reputation from negative market and media perceptions concerning its financial condition.
“The American public and our markets rely upon the integrity of benchmark interest rates like LIBOR and Euribor because they form the basis for hundreds of trillions of dollars of transactions and affect nearly every corner of the global economy,” said David Meister, the CFTC’s director of enforcement.
“Banks that contribute information to those benchmarks must do so honestly. When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank’s reputation, the integrity of benchmark interest rates is undermined,” he added.
Tracey McDermott, acting director of enforcement and financial crime at the FSA, said, “Making submissions to try to benefit trading positions is wholly unacceptable. This was possible because Barclays failed to ensure it had proper controls in place. Barclays’ behaviour threatened the integrity of the rates with the risk of serious harm to other market participants.” McDermott added that the FSA is continuing to pursue a number of other significant cross-border investigations in this area.
Both the CFTC and the FSA said that Barclays co-operated fully during their investigations. And, by agreeing to settle at an early stage, the FSA says the firm qualified for a 30% discount under its settlement discount scheme. Without the discount the fine would have been £85 million.
Barclays chief executive, Bob Diamond, said, “The events which gave rise to today’s resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business.” He noted that it cooperated with the authorities and that several senior executives will forgo their bonuses this year.
Additionally, the British Bankers Association is currently undertaking a review of the way LIBOR is set and will publish its findings shortly.