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.
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.
Tracey McDermott, the FCA’s director of enforcement and financial crime said:
“Rabobank’s misconduct is among the most serious we have identified on LIBOR. Traders and submitters treated LIBOR submissions as a potential way to make money, with no regard for the integrity of the market. This is unacceptable.
Rabobank’s flawed assurances and failure to get a grip on what was going on in its business were extremely disappointing. Firms should be in no doubt that the spotlight will remain on wholesale conduct and we will hold them to account if they fail to meet our standards.”
LIBOR is based on daily estimates of the rates at which a panel of banks borrow funds from one another. 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 (GBP), Dollar (USD) and Yen (JPY) 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.
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 found over 500 instances of attempted LIBOR manipulation, directly or indirectly involving at least 9 managers and 19 other individuals based across the world. At least one manager was actively involved in attempted manipulation and facilitated a culture where this practice appeared to be accepted, or even endorsed by the bank. In April 2009, a JPY LIBOR submitter informed Rabobank’s internal audit group that his submissions were based on direct instructions from traders, yet the bank failed to address the issue.
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.
The FCA would like to thank De Nederlandsche Bank (DNB), the Openbaar Ministerie (OM), the Japanese Financial Services Authority (JFSA), the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DoJ) for their co-operation in this investigation.
Notes to Editors
- The Final Notice for Rabobank[1].
- On 27 June 2012, the FCA fined Barclays Bank plc £59.5 million for misconduct relating to LIBOR and EURIBOR. On 19 December 2012, the Financial Services Authority (FSA), the FCA’s predecessor, 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 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.
4. The LIBOR benchmark reference rate indicates the 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.
5. LIBOR 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.
6. LIBOR is by far the most prevalent benchmark reference rates used in euro, 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.
7. LIBOR is published on behalf of the British Bankers’ Association (BBA). 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. - 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).
- 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.
- Find out more information about the FCA, as well as how it is different to the PRA.