Deutsche Bank fined £227 million by Financial Conduct Authority for LIBOR and EURIBOR failings and for misleading the regulator

The Financial Conduct Authority (FCA) has handed Deutsche Bank AG (Deutsche Bank) a £227 million ($340 million) fine, its largest ever for LIBOR and EURIBOR-related (collectively known as IBOR) misconduct. The fine is so large because Deutsche Bank also misled the regulator, which could have hampered its investigation.

Georgina Philippou, acting director of enforcement and market oversight, said:

“This case stands out for the seriousness and duration of the breaches by Deutsche Bank – something reflected in the size of today’s fine. One division at Deutsche Bank had a culture of generating profits without proper regard to the integrity of the market. This wasn’t limited to a few individuals but, on certain desks, it appeared deeply ingrained.”   

“Deutsche Bank’s failings were compounded by them repeatedly misleading us.  The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems and controls.”

 “This case shows how seriously we view a failure to cooperate with our investigations and our determination to take action against firms where we see wrongdoing.”

Between January 2005 and December 2010, trading desks at Deutsche Bank manipulated its IBOR submissions across all major currencies.

LIBOR and EURIBOR are based on daily estimates of the rates (submissions) at which banks can borrow funds in the inter-bank market. They are fundamental to the operation of both UK and international financial markets, including markets in interest rate derivatives contracts.

This misconduct involved at least 29 Deutsche Bank individuals including managers, traders and submitters, primarily based in London but also in Frankfurt, Tokyo and New York.

Deutsche Bank’s misconduct in relation to EURIBOR exemplifies how serious its failings were, and the potential they had to have a significant impact on the markets.

Traders at Deutsche Bank used a three pronged approach to attempt to maximise the impact on EURIBOR. These were:

• To influence Deutsche Bank’s submitters to alter the Bank’s EURIBOR submissions;
• To collude with other banks that sat on the panel that submitted the rates on which EURIBOR is based and request that they alter their submissions; and
• On occasion to offer or bid cash in the market to create the impression of a change in the supply of funding in order to influence other panel banks to alter their submissions.

This misconduct went unchecked because of Deutsche Bank’s inadequate systems and controls. Deutsche Bank did not have any systems and controls specific to IBOR and did not put them in place even after being put on notice  that there was a risk of misconduct. What is more, Deutsche Bank had defective systems to support the audit and investigation of misconduct by traders. For example, the Bank’s systems for identifying and recording traders’ telephone calls and for tracing trading books to individual traders were inadequate. As a result, Deutsche Bank took over two years to identify and produce all relevant audio recordings requested by the FCA.

Failure to deal with the regulator in an open and cooperative way

Deutsche Bank gave the FCA misleading information about its ability to provide a report commissioned by the German regulator, BaFin. Deutsche Bank did not disclose the report to the FCA and claimed that BaFin had prevented it from being shared when this was untrue.

In addition, Deutsche Bank provided the FCA with a false attestation that stated that its systems and controls in relation to LIBOR were adequate. This was despite the complete lack of IBOR systems and controls. It was known to be false by the person who drafted it.

The FCA’s investigation was made more difficult and was delayed because Deutsche Bank failed to provide timely, accurate and complete information. In one instance, Deutsche Bank in error destroyed 482 tapes of telephone calls, which fell within the scope of an FCA notice requiring their preservation. Deutsche Bank also provided inaccurate information to the regulator about whether other records existed.

Deutsche Bank settled at an early stage of the investigation, qualifying for a 30% discount on its fine. Without the discount, the fine would have been £324 million.

We have worked closely with other regulators in the United States on this case: today the Commodities Futures Trading Commission has imposed a financial penalty of $800 million, the US Department of Justice has imposed a financial penalty of $775 million and the New York Department of Financial Services has imposed a fine of $600 million. The fine imposed by the FCA is approximately $340 million.

Notes to editors

1. The Final Notice for Deutsche Bank[1].
2. On 27 June 2012, the Financial Services Authority (FSA), the FCA’s predecessor, fined Barclays Bank plc £59.5 million for misconduct relating to LIBOR and EURIBOR. On 19 December 2012, the FSA fined UBS AG £160 million for significant failings in relation to LIBOR and EURIBOR, and on 6 February 2013, the FSA fined The Royal Bank of Scotland plc £87.5 million for misconduct relating to LIBOR. On September 2013, the FCA fined ICAP Europe Limited £14 million. On 29^th October 2013, the FCA fined Rabobank £105m. On 15 May 2014, the FCA fined Martin Brokers £630,000. On 20 July 2014 the FCA fined Lloyds Bank Plc £50 million for misconduct relating to LIBOR.
3. The FCA has taken action to improve industry standards around benchmarks. Attempted or actual manipulation of any regulated benchmark is now a criminal offence, which could attract a prison sentence of up to seven years. LIBOR has been regulated since 1 April 2013; SONIA (Sterling Overnight Index Average) and RONIA (Repurchase Overnight Index Average), the WM/Reuters London 4pm Closing Spot Rate, ISDAFIX, the London Gold Fixing the LMBA Silver Price and ICE Brent Index have been regulated since 1 April 2015.
4. The FCA is reviewing how effectively firms are implementing the new rules on LIBOR and is also conducting a broader review of how firms reduce the risk of traders manipulating benchmarks and ensure confidential information is not abused.
5. The FCA plays a leading role in developing internationally agreed regulatory standards on benchmarks. We are actively engaged in developing EU regulation on benchmarks and co-chair work by the International Organisation of Securities Commissions (IOSCO), Financial Stability Board (FSB) and the UK Fair and Effective Markets Review which is considering wider reforms to the fixed income, commodity and currency markets.
6. On 2 July 2012, the Chancellor of the Exchequer commissioned Martin Wheatley, chief executive of the FCA (formerly managing director of the FSA), to undertake a review of the structure and governance of LIBOR and the corresponding criminal sanctions regime. On 28 September 2012, the Wheatley Review published its final report ‘The Wheatley Review of LIBOR[2]’ which included a 10-point plan for comprehensive reform of LIBOR. On October 2012, the Government accepted the Review’s recommendations in full, and enacted the Financial Services Act 2012. This Act, which amended the Financial Services and Markets Act 2000 came into force on 1 April 2013. On 25 March 2013, the FSA published its Policy Statement (FSA PS13/6)[3] setting out the new rules and regulations for financial benchmarks, following on from the recommendations of the Wheatley Review and the new provisions of the Financial Services Act 2012. These rules came into force on 2 April 2013.
7. The IBOR benchmarks reference rate indicates the primary interest rate that banks charge when lending to each other. It is fundamental to the operation of both UK and international financial markets, including markets in interest rate derivatives contracts.
8. IBOR is used to determine payments made under both over the counter (OTC) 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 benchmark reference rates such as LIBOR is therefore of fundamental importance to both UK and international financial markets.
9. LIBOR is by far the most prevalent benchmark reference rate used in US dollar and sterling OTC interest rate derivatives contracts and exchange traded interest rate contracts. The notional amount outstanding of OTC interest rate derivatives contracts at end-2012 totalled USD $490 trillion.
10. LIBOR was at the relevant time published on behalf of the British Bankers’ Association (BBA). Since February 2013 LIBOR has been published by Intercontinental Exchange Benchmark Administration. There are different panels of banks that contribute submissions for each currency in which LIBOR is published. Throughout the relevant period between 7 and 16 banks contributed to the different LIBOR currency panels. Every LIBOR rate was calculated using a trimmed arithmetic mean. Submissions for each currency and maturity made by the banks were ranked in numerical order and the highest 25% and lowest 25% were excluded. The remaining contributions were then arithmetically averaged to create the final published LIBOR rate.
11. EURIBOR is published on behalf of the European Banking Federation. It is the rate at which Euro interbank term deposits are offered by one prime bank to another prime bank within the EMU zone at 11am Brussels time.
12. On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
13. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
14. Find out more information about the FCA.