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libor: cftc, doj, fsa fine barclays June 27, 2012

Posted by Bradley in : financial regulation , trackback

The DOJ (fine: $160 million), CFTC (fine $200 million) and FSA (fine £59.5 million) announced settlements of enforcement actions against Barclays Bank with respect to manipulations of Libor and Euribor rates. Other investigations relating to Libor and Euribor involving these and other agencies are ongoing.

Barclays submitted quotes to the US dollar Libor and Euribor setting processes based on requests of its interest rate derivatives dealers, tried to influence the submissions of other banks to the Euribor (and to some extent to the Libor) setting process, and made submissions to the Libor setting process which were designed to reduce negative media perception.

The Financial Services Authority said that Barclays did not have any specific systems or controls relating to the Libor and Euribor setting processes until December 2009. The FSA’s penalty calculation reflected the following factors:

The integrity of benchmark reference rates such as LIBOR and EURIBOR is of fundamental importance to both UK and international financial markets. Barclays’ misconduct could have caused serious harm to other market participants. Barclays’ misconduct also created the risk that the integrity of LIBOR and EURIBOR would be called into question and that confidence in or the stability of the UK financial system would be threatened.

The agencies noted that Barclays co-operated in the investigation, and the FSA allowed Barclays a discount of 30% for settling at an early stage.

Although much of the speculation in the press about abuses of the libor setting process focused on the financial crisis, Barclays derivatives traders made requests to those responsible for making rate submissions going back as far as the beginning of 2005. The FSA’s final notice cites emails and instant messages by the traders, and tracks the extent to which submissions seem to have followed the email requests. This story of manipulation of the interest rate setting process and of lax compliance is shocking. And focusing on fining the corporate entity doesn’t seem to me to go far enough. The DOJ notes that its non-prosecution agreement applies to Barclays and not to the individuals involved, but I would like to be reading that the corrupt derivative traders who tried to fix interest rates to benefit themselves (and who wrote about sharing bottles of Bollinger with those who helped them) are being subjected to lifetime bans from employment in the financial markets, imprisonment, and disgorgement of their ill-gotten gains.

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