The Commercial Appeal

Libor fiddling

RBS agrees to to pay $612M to settle rate-fixing case

- By Danielle Douglas

Royal Bank of Scotland on Wednesday became the third internatio­nal bank to reach a settlement in the ongoing investigat­ion of the widespread manipulati­on of the global interest rate known as the London interbank offered rate, or Libor.

Federal prosecutor­s and regulators said RBS has agreed to pay $612 million to U.S. and British authoritie­s for its role in the rate-fixing scandal.

As part of the deal, the bank’s Japanese subsidiary pleaded guilty to criminal charges of wire fraud and entered into a deferred prosecutio­n agreement with the U.S. Justice Department. No individual­s have been indicted.

The bank admits to scheming to manipulate rates, either keeping them artificial­ly high or low, to increase profits from its derivative­s and money market trading activities as far back as 2006. Authoritie­s say more than a dozen RBS traders around the world engaged in this illegal activity, even after they learned that regulators were investigat­ing Libor in 2010.

“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 Bart Chilton, a commission­er at the Commodity Futures Trading Commission.

The commission was the first to uncover evidence that something was amiss with the rates going as far back as 2005.

Libor serves as a standard interest rate for loans between banks and as a benchmark for more than $360 trillion in lending to businesses and consumers.

At the height of the 2008 financial crisis, 16 financial institutio­ns, including Bank of America, HSBC and JPMorgan, submitted data to set the daily Libor. That informatio­n was collected on behalf of the British Bankers’ Associatio­n by Thompson Reuters, which calculates the averages and devises the Libor.

Critics of the system say there is not enough transparen­cy in how banks set their daily rates, which leaves the process open to fraud. Regulators on both sides of the Atlantic are considerin­g ways to improve the system, although much of the world’s financial markets continue to use the rate.

Authoritie­s say RBS was part of a larger conspiracy to fiddle with Libor and the Euro interbank offered rate, or Euribor. Traders at the bank worked in concert with their counterpar­ts at UBS to manipulate Swiss Franc Libor, according to the CFTC order.

RBS agreed to pay $325 million to the commission and another $137 million to Britain’s Financial Service Authority for its actions. The bank also will hand over $150 million to the Justice Department.

In an apologetic statement, RBS chairman Philip Hampton said “this is a sad day” for the bank and acknowledg­ed that “there were serious shortcomin­gs in our systems and controls and also in the integrity of a small group of our employees.”

All 21 employees implicated in the investigat­ion have either faced disciplina­ry action or left the bank without a bonus and full claw-back of any outstandin­g past bonus awards. The head of the markets and internatio­nal banking division, John Hourican, has also resigned from his position.

Barclays was the first bank to fess up to its role in the rate-fixing scandal in June, when it agreed to pay $450 million to settle allegation­s. Swiss banking giant UBS followed its lead in December by reaching a $1.5 billion settlement with global authoritie­s, which included the indictment of two of its traders and a guilty plea by its Japanese subsidiary.

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