The Royal Bank of Scotland (RBS) has been fined £87.5m for misconduct over the London Interbank Offered Rate (LIBOR), after the regulator discovered malpractice by staff across the globe.
The Financial Services Authority (FSA) unearthed a multitude of breaches involving at least 21 RBS employees that occurred over several years.
The staff guilty of misconduct were based in the UK, Japan, Singapore and the USA and the breaches happened between January 2006 and November 2010.
Some of the breaches included RBS employees making Japanese yen (JPY) and Swiss franc (CHF) LIBOR submissions that took into account its derivatives trading positions.
RBS also allowed derivatives traders to act as substitute submitters and make JPY LIBOR submissions that took into account its derivatives trading positions.
RBS employees were also found to have made JPY, CHF and US dollar (USD) LIBOR submissions that took into account the profit and loss of its money market trading books.
The bank’s derivatives traders also colluded with other LIBOR panel banks and interdealer broker firms to influence the JPY LIBOR submissions made by other panel banks, including one derivatives trader entering into “wash trades”.
These were risk-free trades that cancelled each other out and for which there was no legitimate commercial rationale. They were designed to make corrupt brokerage payments to one broker firm to garner influence. The derivatives trader used this influence to get the broker firm to try to change other panel banks’ JPY LIBOR submissions.
An investigation found that the misconduct was widespread. At least 219 requests for inappropriate submissions were documented. An unquantifiable number of oral requests, which by their nature would not be documented, were also made.
The regulator added that RBS had established a business model that sat derivatives traders next to LIBOR submitters and encouraged the two groups to communicate without restriction, despite the obvious risk that derivatives traders would seek to influence RBS’ LIBOR submissions.
In response to a specific request by the FSA as a result of its enquiries into LIBOR, RBS attested to the FSA in March 2011 that its LIBOR related systems and controls were adequate.
The FSA said: “This was inaccurate as RBS’ systems and controls were inadequate.”
Tracey McDermott, director of enforcement and financial crime at the FSA, 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 FSA continues to pursue other significant cross-border investigations in relation to LIBOR and other benchmark rates.