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RBS fined £390m over Libor scandal

RBS has become the third bank to be fined for its part in rate-rigging.

RBS fined £390m over Libor scandal

State owned Royal Bank of Scotland (RBS) has been fined £390 million by UK and US financial watchdogs over its part in the Libor rate-rigging scandal.

The Financial Services Authority (FSA) found a number of breaches in the bank’s Libor dealings and has fined RBS £89.5 million. It worked with the US Commodity Futures Trading Commission, which fined the bank $325 million (£207 million), while the US Department of Justice fined RBS $150 million (£95 million).

RBS, which is 82% owned by the taxpayer, becomes the third bank to be fined over the Libor scandal, with Barclays fined a total of £290 million and UBS £1.5 billion. Shares in RBS (RBS.L) were little moved by the long-anticipated news, up 0.5% to 339p on a flat market.

The fine comes as business secretary Vince Cable said in a speech that the bank should have been fully nationalised when it was bailed out during the financial crisis. He said the coalition government now had ‘responsibility without control’.

Responding to today's fine, Stephen Hester, RBS group chief executive, said the bank's commitment to change was 'absolute'.

'Widespread' misconduct

The London Interbank Offered Rate (Libor) and the Euro Interbank rate are the rates at which banks lend to each other. In order to set an average rate, commercial banks provide their lending rates to other banks. However, last year a number of high street banks were found to have manipulated their rates to benefit the banks’ investment arms.

The FSA found a number of individuals, based in the UK, Japan, Singapore and the US, were involved in Libor misconduct at RBS between January 2006 and November 2010.

This included RBS making Libor submissions that benefited the bank’s investment arm’s own derivative trading positions. It also allowed derivative traders to make Libor submissions that benefited their own positions.

The bank was also found to have made Libor submissions that boosted the profit and loss accounts of its money market trading.

RBS derivatives traders were found to have colluded with other banks that submit to Libor as well as broker firms to influence Libor submissions made by other banks.

The regulator said the misconduct was ‘widespread’ and that at least 219 requests for inappropriate submissions had been documented but there was ‘an unquantifiable number of oral requests, which by their nature would not be documents, were also made’.

It found ‘at least 21 individuals’ including derivative and money market traders, and at least one manager, who were all involved in inappropriate conduct.

Failure to identify risks

RBS failed to identify and manage the risks of the inappropriate Libor submissions that were made and allowed traders and Libor submitters to work in an environment where they could communicate ‘without restriction despite the obvious risk that derivatives traders would seek to influence RBS’ Libor submissions’.

The bank had no Libor-related systems and controls in place until March 2011 and did not address the risk of derivatives traders influencing submissions until June 2011. It took until March 2012 to address the impact money market traders would have on submissions.

Despite failing to put controls in place, RBS told the FSA in March 2011 that its controls were adequate.

Tracey McDermott, director of enforcement and financial crime at the City regulator, said: ‘The integrity of benchmark reference rates such as Libor is of fundamental importance to both UK and international financial markets. The findings set out in our notice today demonstrate a failure by RBS to take that wider context into account.

‘The failures at RBS were all the more serious because of the attempts not only to influence the submissions of RBS but also of other panel banks and the use of interdealer brokers to do this.’

McDermott added that the ‘extent and nature of the misconduct relating to Libor has cast a shadow on the reputation of this industry’.

RBS chairman Philip Hampton said there were ‘serious shortcomings’ in the bank’s systems and controls and ‘also in the integrity of a small group of our employees’.

‘We have to fix the culture in the banking industry. The most important part of that is focusing our efforts on the needs of our customers and acting with integrity. And it also involves facing up to the bank’s past failings, no matter how uncomfortable that is. That is why those responsible have left the organisation or been subject to disciplinary action,’ he said.

‘The board has also used all means possible to ensure the gravity of this issue is reflected in the remuneration received by employees. No one should be left in any doubt about how seriously RBS takes these failings.'

RBS reaches LIBOR settlements

6 February 2013

The Royal Bank of Scotland Group ("RBS") has reached a settlement with the Financial Services Authority ("FSA") in the United Kingdom, the United States Commodity Futures Trading Commission ("CFTC") and the United States Department of Justice ("DOJ"), in relation to investigations into submissions, communications and procedures around the setting of the London Interbank Offered Rate ("LIBOR").  RBS has agreed to pay penalties of £87.5 million, $325 million and $150 million to the FSA, CFTC and DOJ respectively, to resolve the investigations. As part of the agreement with the DOJ, The Royal Bank of Scotland plc has entered into a Deferred Prosecution Agreement in relation to one count of wire fraud relating to Swiss Franc LIBOR and one count for an antitrust violation relating to Yen LIBOR.  RBS Securities Japan Limited ("RBSSJ") has also agreed to enter a plea of guilty to one count of wire fraud relating to Yen LIBOR.

Regulatory findings

The investigations uncovered wrongdoing on the part of 21 employees, predominantly in relation to the setting of the bank's Yen (JPY) and Swiss Franc (CHF) LIBOR submissions.

The key findings from the investigations are as follows:

·      JPY and CHF derivative traders sought to influence the Bank's JPY and CHF LIBOR setters in the period October 2006 to November 2010;

·      Two RBS traders based in London colluded with other banks and brokers in making and receiving requests for higher and lower JPY and CHF LIBOR;

·      RBS's JPY, CHF and US Dollar money market traders on occasion considered their own money markets books as a factor in their LIBOR submissions.

The findings also highlight serious failures in the controls and risk management systems RBS had in place. However, none of the regulators in question concluded that RBS, as a firm, had engaged in any deliberate misconduct. There are no findings that anyone beyond individual traders and, in some instances, their immediate supervisors, was aware of, or instructed, any deliberate manipulation of submissions, nor is there any finding that RBS suppressed LIBOR submissions at the direction of senior management.

The detailed findings of the regulatory investigations are set out fully in the final notices published on the FSA's, CFTC's and DOJ's respective websites.

Philip Hampton, RBS Chairman, said:

"The RBS Board acknowledges that there were serious shortcomings in our systems and controls and also in the integrity of a small group of our employees. This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past.

"We have to fix the culture in the banking industry. The most important part of that is focusing our efforts on the needs of our customers and acting with integrity. And it also involves facing up to the Bank's past failings, no matter how uncomfortable that is. That is why those responsible have left the organisation or been subject to disciplinary action.  The Board has also used all means possible to ensure the gravity of this issue is reflected in the remuneration received by employees.  No one should be left in any doubt about how seriously RBS takes these failings.

"Although this wrongdoing went undetected for longer than we would have wished, in this and across all risk areas we are working hard to root out bad practices and put them right for the future. This process has no short cuts but does have our full attention."

Stephen Hester, RBS Group Chief Executive, said:

"I want to speak very clearly and on behalf of the 137,000 employees of RBS. We condemn the behaviour of the individuals who sought to influence some LIBOR currency settings at our bank from 2006-10.  There is no place at RBS for such behaviour.

"We are also determined to correct the broad range of control and risk management failures that originated in RBS during the financial boom years. LIBOR manipulation is one example. This is a painstaking task undertaken carefully and diligently over five years.  We know that we cannot detect and solve every problem as fast as we would like.  But our commitment is absolute.  We are dedicated to creating a safe and secure RBS that serves customers well and that, in the right way, creates value for those who rely on us.

"LIBOR manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom. We will use the lessons learned from this episode as further motivation to reject and change the vestiges of that culture. RBS is making substantial progress overall. Today's announcement is not the first and will not be the last reminder of the scale of the changes that need to be made. But our determination to clean up RBS for all is undiminished."

Management actions

Today's resolutions relate to industry-wide investigations into the setting of LIBOR rates across a range of currencies. Since such investigations began in 2010 the bank has reviewed more than 11 million documents, over 1,600 hours of audio recordings and conducted more than 100 employee interviews. 

RBS has offered its full cooperation to regulators throughout. The FSA, CFTC and DOJ have acknowledged the bank's cooperation. As wrongdoing was identified, RBS acted swiftly to report improper conduct to the authorities.  The majority of issues were identified by RBS's own internal investigations.

Since becoming aware in 2011 of improper conduct in connection with rate setting, RBS management has taken action to strengthen significantly the systems and controls governing its LIBOR submissions.  For example: RBS has created an independent and ring-fenced rate setting team; all relevant staff are obliged to undertake a comprehensive training programme; new preventative and detective controls have been put in place that include monitoring and statistical checking of submissions by independent personnel within RBS; and, a Rate Setting Review Board has been created to oversee the submission process. 

Regulation of LIBOR continues to evolve and in September 2012 the FSA published its first assessment of the regulatory reforms required via the Wheatley review. RBS is committed to full compliance with the rate setting standards contemplated in the Wheatley review and required by the CFTC. 

The Board has taken the following action to ensure full and proper accountability:

·      All 21 wrongdoers referred to in the regulatory findings have left the organisation or been subject to disciplinary action. Six have been dismissed for LIBOR related misconduct, including two managers. Six have been severely disciplined or are going through a disciplinary process. Eight left the organisation before disciplinary action could be taken and one was dismissed for misconduct not related to these findings.  In addition to the 21, two managers with supervisory responsibilities have also left the Group.

·      Individuals found culpable have left the bank with no 2012 bonus and full claw-back of any outstanding past bonus awards applied. Supervisors with accountability for the business but no knowledge or involvement in the wrongdoing have received zero bonuses for 2012 and a range of claw-back from prior years depending on specific findings. Further reduction of bonus and long term incentive awards and prior year bonus claw-back will be made across RBS and particularly in the Markets division to account for the reputational damage of these events and the risk of additional outstanding legal and regulatory action.

·      The RBS Remuneration Committee has made full use of the tools provided by our reformed pay and bonus policies. The cumulative impact of the Board's actions (which include present and future year bonus reductions, claw-back of prior year awards and reduction of Long Term Incentive awards) is a deduction from employee incentive pay of c£300 million, with the Markets division bearing the greatest cost.

·      John Hourican, Chief Executive of the Markets and International Banking division, will leave the bank. This was a difficult decision. While John had no involvement in or knowledge of the misconduct, and very notable business achievements while in office, both John and the Board felt it was right that he leave the organisation in recognition of the management issues identified in relation to this settlement and the impact on the Group's reputation. John will leave the business after handing over his responsibilities. He will receive 12 months' notice and his other contractual entitlements, however, he will forfeit all his unvested bonus and Long Term Incentive Plan awards that are subject to claw-back.

RBS's Markets business has been dramatically shrunk since 2008. In aggregate, the Markets division is now some 20 per cent of RBS's capital usage with Retail and Commercial Banking 80 per cent.  Last year, an exit from the Equities and M&A Advisory business lines was announced and the Markets business will shrink further to streamline resource usage and prepare for the impacts of ring-fencing on capital and funding.  In the new regulatory environment, the goal of this smaller, more efficient Markets division is to help serve the needs of the Group's core corporate customers. This is especially important in the UK where RBS supports more businesses than any other bank. 

RBS will continue to cooperate in the investigations by the FSA, CFTC and DOJ, as well as investigations by various other governmental, regulatory and competition authorities. The other authorities include the European Commission and the Japan Financial Services Agency. The settlement with the authorities outlined above will not impact the capital or liquidity status of RBSSJ, or affect RBS's continued commitment to RBSSJ or its Japanese operations.

3 comments so far. Why not have your say?

Rob Walker

Feb 06, 2013 at 16:48

Pity RBS didn't take the initiative and decare all this 4-6 months ago when Barclays were taking the rap for being the first to hold its hand up (same for Lloyds I suspect). The time to explain all this to the shareholders and the public at large was when these problems were first aired. Anything we're being asked to swallow now has been practised, sanitised and mulled over by the spin-doctors for months - and it is even our own government who, as the majority shareholder, who is ultimately responsible for this tardy 'confession'.

Imagine if the BBC had waited until another channel had done a programme on Jimmy Savile before they admitted any wrong-doing on their premisies eh? (Oh..... ahem.....amybe they did too .....)

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Feb 06, 2013 at 19:34

Only when those responsible, be they traders, managers, managing directors and those with executive authority have been fired will the public begin to believe that banks and their regulators are serious.

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Feb 07, 2013 at 00:09

Osborne must be rubbing his hands with glee!

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