Washington, D.C. – The U.S. Commodity Futures Trading Commission (CFTC) announced an order against The Royal Bank of Scotland plc and RBS Securities Japan Limited on February 6, 2013, settling charges of manipulating LIBOR – the benchmark interest rate for Yen and Swiss Franc. The CFTC alleges RBS engaged in successful manipulation, attempted manipulation, and false reporting related to these critical interest rates.
The Order requires RBS to pay a $325 million civil monetary penalty and cease further violations. Additionally, RBS must implement measures to ensure the integrity and reliability of LIBOR submissions, including improvements to internal controls.
According to David Meister, the CFTC’s Director of Enforcement, the integrity of LIBOR relies on truthful information from major banks. He stated that RBS traders falsely influenced LIBOR submissions for years to manufacture winning trades, depriving the public of an honest benchmark.
The CFTC’s investigation revealed that RBS traders requested colleagues to submit false LIBOR rates that would benefit the bank’s derivatives positions, such as interest rate swaps. These requests involved both inflating and deflating submissions as needed to maximize profits. Submitters often complied, and in some cases, were traders themselves, skewing submissions to benefit their own trades.
The bank fostered an environment conducive to manipulation by co-locating derivatives traders and LIBOR submitters, creating a conflict of interest. Even after separating these roles, the misconduct continued through electronic messaging systems. The Order also indicates RBS traders collaborated with a trader from a UBS AG subsidiary in the manipulation scheme.
With this action, the CFTC has imposed over $1.2 billion in penalties on banks for LIBOR-related misconduct, and has mandated improvements to internal controls and submission processes to ensure the integrity of benchmark interest rates. Each bank is now required to base submissions on transactions and avoid conflicts of interest.
Source: CFTC.gov
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