Barclays fined £59.5 million for significant failings in relation to LIBOR and EURIBOR

The Financial Services Authority (FSA) has today fined Barclays Bank Plc (Barclays) £59.5 million for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR). This is the largest fine ever imposed by the FSA.

Barclays’ breaches of the FSA’s requirements encompassed a number of issues, involved a significant number of employees and occurred over a number of years.  Barclays’ misconduct included:

• making submissions which formed part of the LIBOR and EURIBOR setting process that took into account requests from Barclays’ interest rate derivatives traders.  These traders were motivated by profit and sought to benefit Barclays’ trading positions;
• seeking to influence the EURIBOR submissions of other banks contributing to the rate setting process; and
• reducing its LIBOR submissions during the financial crisis as a result of senior management’s concerns over negative media comment.

In addition, Barclays failed to have adequate systems and controls in place relating to its LIBOR and EURIBOR submissions processes until June 2010 and failed to review its systems and controls at a number of appropriate points.

Barclays also failed to deal with issues relating to its LIBOR submissions when these were escalated to Barclays’ Investment Banking compliance function in 2007 and 2008. 

Tracey McDermott, acting director of enforcement and financial crime, said:

“Barclays’ misconduct was serious, widespread and extended over a number of years.  The integrity of benchmark reference rates such as LIBOR and EURIBOR is of fundamental importance to both UK and international financial markets.  Firms making submissions must not use those submissions as tools to promote their own interests.”

“Making submissions to try to benefit trading positions is wholly unacceptable.  This was possible because Barclays failed to ensure it had proper controls in place.  Barclays’ behaviour threatened the integrity of the rates with the risk of serious harm to other market participants.”

“The FSA continues to pursue a number of other significant cross-border investigations in this area and the action we have taken against Barclays should leave firms in no doubt about the serious consequences of this type of failure.” 

The BBA is currently undertaking a review of the way LIBOR is set and will publish its findings shortly.  The FSA, along with the other tripartite authorities, is working to support market-led reviews of existing arrangements, with the goal of ensuring such arrangements continue to command the confidence of all stakeholders. 

Barclays co-operated fully during the FSA’s investigation and agreed to settle at an early stage.  The firm qualified for a 30% discount under the FSA’s settlement discount scheme.  Without the discount the fine would have been £85 million.

This was a significant cross-border investigation and the FSA would like to thank the U.S. Commodity Futures Trading Commission (CFTC), the U.S. Department of Justice (DoJ) (together with the Federal Bureau of Investigation (FBI)) and the Securities and Exchange Commission (SEC) for their co-operation. 

The CFTC brought attempted manipulation and false reporting charges against Barclays for similar failings, which the bank agreed to settle.  The CFTC imposed a penalty of US$200 million.  In addition, as part of an agreement with the DOJ, Barclays admitted to its misconduct and agreed to pay a penalty of US$160 million. 

Notes for editors

1. The Final Notice for Barclays Bank Plc.
2. LIBOR and the EURIBOR are benchmark reference rates that indicate the interest rate that banks charge when lending to each other. They are fundamental to the operation of both UK and international financial markets, including markets in interest rate derivatives contracts.
3. LIBOR and EURIBOR are 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 and EURIBOR also affect payments made under a wide range of other contracts including loans and mortgages. The integrity of benchmark reference rates such as LIBOR and EURIBOR is therefore of fundamental importance to both UK and international financial markets.
4. LIBOR is published on behalf of the British Bankers’ Association (BBA) and EURIBOR is published on behalf of the European Banking Federation (EBF). LIBOR and EURIBOR are calculated as averages from submissions made by a number of banks selected by the BBA or EBF. There are different panels of banks that contribute submissions for each currency in which LIBOR is published, and for EURIBOR.
5. LIBOR and EURIBOR are 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 in the first half of 2011 has been estimated at 554 trillion US dollars. The total value of volume of short term interest rate contracts traded on LIFFE in London in 2011 was 477 trillion euro including over 241 trillion euro relating to the three month EURIBOR futures contract (the fourth largest interest rate futures contract by volume in the world).
6. Until February 2011 the US dollar LIBOR panel consisted of 16 banks and the rate calculation for each maturity excluded the highest four and lowest four submissions. An average of the remaining eight submissions was taken to produce the final published LIBOR.
7. Throughout the Relevant Period, the EURIBOR panel consisted of at least 40 banks and in each maturity the rate calculation excluded the highest 15% and lowest 15% of all the submissions collated. A rounded average of the remaining submissions was taken to produce the final published EURIBOR.
8. The FSA Enforcement Conference 2012 – ‘Credible deterrence: Here to stay’ takes place on Monday, 2 July, 2012.
9. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
10. The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013. The Financial Services Bill currently undergoing parliamentary scrutiny is expected to receive Royal Assent by the end of 2012.