The fallout from the LIBOR scandal hit the headlines again this week with the news that the Financial Conduct Authority (FCA) has fined Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) for serious, prolonged and widespread misconduct relating to the London Interbank Offered Rate (LIBOR).
The £105 million fine is the third highest ever imposed by the FCA or its predecessor, the Financial Services Authority, and the fifth penalty for LIBOR-related failures.
The LIBOR benchmark reference rate indicates the interest rate that banks charge when lending to each other. It is used to determine payments made under both over the counter interest rate derivatives contracts and exchange traded interest rate contracts by a wide range of counterparties including small businesses, large financial institutions and public authorities.
Benchmark reference rates such as LIBOR also affect payments made under a wide range of other contracts including loans and mortgages. The integrity of such benchmark reference rates is therefore of fundamental importance to both UK and international financial markets.
According to the FCA, Rabobank’s poor internal controls encouraged collusion between traders and LIBOR submitters and allowed systematic attempts at benchmark manipulation. Rabobank did not fully address these failings until August 2012, despite assuring the FCA in March 2011 that suitable arrangements were in place.
In particular, says the FCA, between May 2005 and January 2011, Rabobank allowed derivatives and money market traders to:
- Make, or influence others at the bank to make LIBOR submissions that benefitted trading positions linked to Sterling, Dollar and Yen LIBOR;
- Collude with individuals at other LIBOR panel banks and interdealer firms to influence JPY and USD LIBOR submissions made by other panel banks; and
- Collude with individuals at other LIBOR banks and interdealer broker firms who sought to influence Rabobank’s JPY LIBOR submissions
This meant that the affected LIBOR submissions from Rabobank, and some of the LIBOR submissions made by other panel banks, didn’t fairly reflect the cost of inter-bank borrowing, undermining the overall integrity of LIBOR.
According to the FCA, Rabobank failed to act with due skill care and diligence; identify, manage or control the relevant risks; or meet proper standards of market conduct. This breached three of the FCA’s fundamental principles for businesses, which underpin its objectives to ensure that markets function effectively, and to promote market integrity.
The FCA adds that Rabobank cooperated with the FCA’s investigation and agreed to settle early, qualifying for a 30% discount on its fine. Without the discount, the fine would have been £150 million.
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This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.
