A NOTEPAD ON COMPANY AND FINANCIAL LAW, NEWS AND REGULATION
The Financial Services Authority yesterday published its Internal Audit Report on LIBOR. In short, the FSA was aware of some evidence of low-balling in the 2007 to 2009 period, but not of manipulation for profit (query whether the distinction can be that exact).
The FSA’s press release is here and its Internal Audit Report is here. Much more on LIBOR here.
From the press release:
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FSA fines UBS £160 million for LIBOR, EURIBOR misconduct.
The Final Notice is here. From the FSA press release:
“UBS’s breaches of the FSA’s requirements encompassed a number of issues, involved a significant number of employees and occurred over a period of years in a number of countries. Between 1 January 2005 to 31 December 2010 the misconduct included:
• UBS’s traders routinely making requests to the individuals at UBS responsible for determining its LIBOR and EURIBOR submissions to adjust their submissions to benefit the traders’ trading positions.
• Giving the roles of determining its LIBOR and EURIBOR submissions to traders whose positions made a profit or loss depending on the LIBOR / EURIBOR fixes. This combination of roles was a fundamental flaw in organisational structure given the inherent conflict of interest between these two roles.
• Colluding with interdealer brokers in co-ordinated attempts to influence Japanese Yen (JPY) LIBOR submissions made by other panel banks. Corrupt brokerage payments were made to reward brokers for their efforts to manipulate the LIBOR submissions of panel banks.
• Colluding with individuals at other panel banks to get them to make JPY LIBOR submissions that benefited UBS’s trading positions.
• Adopting LIBOR submissions directives whose primary purpose was to protect the bank’s reputation by avoiding negative media attention about its submissions and speculation about its creditworthiness.
The misconduct was extensive and widespread. At least 2,000 requests for inappropriate submissions were documented – an unquantifiable number of oral requests, which by their nature would not be documented, were also made. Manipulation was also discussed in internal open chat forums and group emails, and was widely known. At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions. The routine and widespread manipulation of the submissions was not detected by Compliance or by Group Internal Audit, which undertook five audits of the relevant business area during the relevant period.
Even when the trading and submitting roles were split in Autumn 2009, UBS’s systems and controls did not prevent traders from camouflaging their requests as “market colour”. Given the widespread and routine nature of the requests to change LIBOR and EURIBOR and the nature of the control failures, the FSA found that every LIBOR and EURIBOR submission, in currencies and tenors in which UBS traded during the relevant period, was at risk of having been improperly influenced to benefit derivatives trading positions.
The misconduct occurred in various locations around the world including Japan, Switzerland, the UK and the USA.”
Much more LIBOR here.
“Today the Serious Fraud Office, with the assistance of the City of London Police, executed search warrants at three residential premises in Surrey (1) and Essex (2). Three men, aged 33, 41 and 47, have been arrested and taken to a London police station for interview in connection with the investigation into the manipulation of LIBOR. The men are all British nationals currently living in the United Kingdom.”
See also: Alleged LIBOR manipulation – collection of posts
HM Treasury today published the legislation, to be contained in the Financial Services Bill, by which section 397 of the Financial Services and Markets Act 2000 will be replaced and extended to capture the making of misleading statements to manipulate benchmarks such as LIBOR. The draft legislation is here.
HM Treasury has today announced that the Government is accepting the recommendations of the Wheatley Review of LIBOR in full. The Treasury’s press release is here and the ministerial statement is here (pdf). We covered the Wheatley recommendations in this post.
Section 397 of the Financial Services and Markets Act 2000 will be extended to capture the making of misleading statements to manipulate benchmarks such as LIBOR. From the ministerial statement:
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HM Treasury today published the Wheatley Review of LIBOR (and press release here), commissioned by the Government as a response to the Barclays LIBOR manipulation affair. The recommendations of particular interest from a legal perspective are that (see section 2 of the Review):
The Treasury Select Committee’s preliminary findings on the LIBOR fixing scandal were released on 18 August 2012. The preliminary report can be read here and the accompanying press release is here.
From the “conclusion and recommendations” of the preliminary report:
On the need for widening the market abuse and criminal regimes to catch benchmark manipulation:
“The Committee urges the Wheatley review to consider the case for amending the present law by widening the meaning of market abuse to include the manipulation, or attempted manipulation, of the LIBOR rate and other survey rates. They should also consider the case for widening the definition of the criminal offence in section 397 of FSMA to include a course of conduct which involves the intention or reckless manipulation of LIBOR and other survey rates.”
On the Financial Services Authority’s shortcomings:
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HM Treasury published on 10 August 2012 an initial discussion paper to support the review of LIBOR by Martin Wheatley, chief executive-designate of the Financial Conduct Authority. The discussion paper follows the Treasury’s setting of the Wheatley Review’s Terms of Reference on 30 July 2012.
The discussion paper is here. Accompanying press releases are here and here. A speech by Martin Wheatley given on the same date is here; in that speech, Mr Wheatley set out the scope of his review:
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From the SFO’s press release today:
“Further to our announcement on 2 July 2012, the Director of the Serious Fraud Office, David Green QC, is satisfied that existing criminal offences are capable of covering conduct in relation to the alleged manipulation of Libor and related interest rates. The investigation, announced on 6 July, involves a number of financial institutions.”
See also: Serious Fraud Office to open criminal investigation into alleged LIBOR manipulation
The Commission has today published amendments to its October 2011 “Proposals for a Regulation on Market Abuse and for a Directive on Criminal Sanctions for Market Abuse” (which we discussed in this post). The amendments would criminalise the manipulation of benchmarks, including LIBOR and EURIBOR and all other benchmarks which “determine the amount payable under a financial instrument”.
The Commission’s press release is here, the EU Justice Commission’s press release is here and a set of FAQs is here.
The Commission proposes to achieve this criminalisation of benchmark manipulation through amendments to its draft Directive on Criminal Sanctions for Market Abuse:
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From Sky News:
“By Mark Kleinman, City Editor
US regulators have criticised the British response to the escalating international Libor-rigging scandal, labelling it another example of a “made-in-London” financial crisis.
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“The SFO Director David Green QC has today decided formally to accept the LIBOR matter for investigation” – Serious Fraud Office statement today.
See also: SFO drops disastrous investigation into Vincent Tchenguiz; never got into Annabel’s
The Serious Fraud Office’s whistleblowing service
“I love Barclays, and I am proud of all of you”: Bob Diamond letter to staff
In his statement this afternoon on LIBOR, the Chancellor of the Exchequer announced a plethora of inquiries and reviews:
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Here is the letter sent by the Barclays Chief Executive to the Chairman of the Treasury Select Committee tonight. Excerpts are copied below .
The letter says that the attempted manipulation was done for two reasons:
The key question that the Barclays letter raises, but does not answer, is who took the “decision to lower submissions” in relation to that second reason. It seems ill-advised that Barclays has released a letter that so obviously poses this question but leaves it unresolved. The bank will be under pressure to provide an answer.
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The Chancellor of the Exchequer made a statement to Parliament today on the FSA’s investigation into Barclays’ attempted manipulation of the LIBOR and EURIBOR rates.
On the general culture that the FSA’s report reveals, the Chancellor said:
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And CEO Bob Diamond gives up his bonus – takes some seriously bad news for that to happen – after regulators find that Barclays attempted to manipulate the London Interbank Offered Rate, one of the global benchmarks for interest rates.
Barclays statement here. FSA press release here and Final Notice here. US Department of Justice statement here. From the US Commodities Futures Trading Organisation press release:
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A useful article from Dechert, explaining what will happen to the section 397 Financial Services and Markets Act 2000 “misleading statements and practices” offence when the Financial Services Act 2012 comes into force in April 2013.
In short, the s397 offence will be replaced by three offences contained in section 89, 90 and 91 of the new Act – ‘misleading statements’ (section 89), ‘misleading impressions’ (section 90) and misleading statements and impressions in relation to benchmarks (section 91).
The Decert article also discusses the FCA’s powers to ban misleading financial promotions.
FSA consultation launched 5 December 2012; press release here; consultation document here. The consultation closes on 13 February 2013.
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Fresh from proposing amendments to its own draft regulation and directive on market abuse that would criminalise the manipulation of benchmarks, including LIBOR and EURIBOR, the Commission has today launched a consultation on “a possible framework for the regulation of the production and use of indices serving as benchmarks in financial and other contracts”. The Commission’s press releases is here, the consultation page is here and the consultation document is here.
From the press release:
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In 14 August 2012 we highligthed the disclosure in Barclays interim results that the FSA is investigating “the sufficiency of disclosure in relation to fees payable under certain commercial agreements and whether these may have related to Barclays capital raisings in June and November 2008″.
“U.K. fraud prosecutors may open a criminal probe as soon as this week into payments Barclays Plc (BARC) made in 2008 to Qatar’s sovereign wealth fund as the bank sought to raise money, according to two people familiar with the case.
The Serious Fraud Office, which prosecutes bribery and white collar crime, may inform the London-based bank about its decision on a probe this week, according to the people, who declined to be identified because the discussions are private. Prosecutors are working with the U.K. Financial Services Authority, Britain’s finance regulator, which is conducting a civil investigation into whether the bank adequately disclosed fees it agreed to pay the Qatar Investment Authority”.
See also: Barclays LIBOR travails
The Parliamentary Commission on Banking Standards, established as the LIBOR scandal started to unfurl, yesterday issued its call for evidence, inviting responses by 24 August 2012 to the following initial questions:
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Anthony Salz, former senior partner of Freshfields, has been appointed to lead a review of Barclays business practices (the Review). The Barclays press release announcing the Review is here and the Review’s terms of reference are here.
The Review was initiated following Barclays fine for the attempted manipulation of the LIBOR. The terms of reference assert that:
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The Commission was established as the LIBOR scandal started; its membership and mandate were announced yesterday evening. It is to consider and report on:
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The CEO designate of the future Financial Conduct Authority, Martin Wheatley, set out his vision for the new conduct regulator in a speech last week at the FSA’s Enforcement Conference:
In an undated announcement on its website, the Serious Fraud Office states that it has re-opened its investigation into Weavering Capital UK, the advisor to the US$639 million Weavering Macro Fixed Income Fund Ltd hedge fund which collapsed in 2008:
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Prompted by the failure of the Royal Bank of Scotland and in the spirit of Barclays travails, HM Treasury today launched a consultation on possible sanctions for directors of failed banks. The consultation document is here and the accompanying Treasury press release is here.
The two principal measures suggested in the consultation document are:
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Marcus Agius back as Chairman. Announcement here.
Mr Diamond said in the announcement: “We…added our own distinctive chapter to the long and proud history of Barclays”.
UPDATE 3 July 2012: Barclays submission to the Treasury Select Committee is here. The part of interest is the file note by Bob Diamond, in which he recorded on 29 October 2008 that Paul Tucker, Deputy Governor of the Bank of England, had that day told him that “it did not always need to be the case that we [i.e. Barclays LIBOR submissions] appeared as high as we have recently”.
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Bob Diamond has written to all Barclays staff about the LIBOR scandal and the resignation of the bank’s chairman. The most interesting part of the letter concerns the failures of Barclays risk management:
“The events revealed last week arose in large part because we did not have appropriate controls in place. Frankly, we misjudged the risk associated with the underlying activity. That must never happen again. Once we better understood the risks, we put in place the right controls and systems.”
Mr Diamond doesn’t address the question that is likely to preoccupy the Treasury Select Committee on Wednesday: to what extent did he know about the incorrect LIBOR submissions at the time they were made?
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The chairman of Barclays, Marcus Agius, has resigned following the LIBOR scandal. Mr Agius said in the bank’s statement:
“…last week’s events – evidencing as they do unacceptable standards of behaviour within the bank – have dealt a devastating blow to Barclays reputation. As Chairman, I am the ultimate guardian of the bank’s reputation. Accordingly, the buck stops with me and I must acknowledge responsibility by standing aside”.
The bank has started an independent review of its business practices:
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