Libor Fixing Scandal: CFTC and FCA Fine Icap £55m on UBS Rate Rigging Collusion

The US Commodity Futures Trading Commission and Britain's Financial Conduct Authority has fined the world's largest interdealer brokerage Icap for its role in the manipulation of the interbank lending rate Libor.

According to a joint statement by the US and UK financial watchdogs, Icap will pay £14m (€16.6m, $22.5m) to the FCA and £41m to the CFTC after a significant number of brokers, including two managers, attempted to rig rates between October 2006 and November 2010.

"The misconduct in relation to Libor has cast a shadow over the financial services industry," said Tracey McDermott, director of enforcement and financial crime at the FCA.

"The findings we publish today illustrate, once again, individuals within the industry acting with a cavalier disregard both for regulatory obligations and the interests of the markets. Icap's significant failings in culture and controls allowed that misconduct to flourish and fell far short of our expectations.

Libor valuations directly influence the value of trillions of dollars of financial deals between banks and other institutions.

The benchmark reference rates are used in euro, US dollar and British sterling over-the-counter (OTC) interest rate derivatives contracts and exchange-traded interest rate contracts.

Attempted Manipulation

The regulators said Icap brokers colluded with traders at UBS to manipulate the Japanese Yen Libor rates for the benefit of the traders by emailing skewed suggestions to some rate setting 'Panel Banks'.

The watchdogs added that other attempts of manipulation included requesting only certain Panel Banks to make specific Japanese Yen Libor submissions.

A broker was also found to have received corrupt bonus payments, at the instigation of one manager, as a reward for his assistance in manipulating the Japanese Yen Libor rates.

"Restoring trust in the industry starts with rooting out and recognising bad practice. True change will however only be achieved when all in the financial services industry accept and deliver on their responsibility to ensure that markets operate with integrity," said McDermott.

"This is our fourth penalty in relation to Libor and our investigations continue. The lessons however go far wider than Libor and we will take a very dim view of those who do not learn them."

History of Speculated Collusion

In June 2012, Barclays became the first bank to settle with US and UK authorities for a record £290m fine for the manipulation of Libor and Euribor. Five months later, UBS agreed a record $1.5bn fine with US, UK and Swiss authorities for its role in manipulating a number of key benchmark interbank lending rates, including Libor.

In February 2013, RBS agreed to pay £390m to settle US and UK chargesrelated to the manipulation of the Libor.

However, that month, Icap's chief executive Michael Spencer, and former Conservative party treasurer, declared that the group did not find "wash trades," used by banks to reward brokers for their help in manipulate key interbank lending rates, in a bid to distance itself from the Libor rigging scandal.

Spencer told investors: "We haven't found any wash trades that we've been involved in."

Wash trades is the name given to the practice of banks creating fake trades to pay brokers through commissions.

ICAP's declaration follows growing speculation over who colluded with the Royal Bank of Scotland (RBS).

The US Commodity Futures Trading Commission, the Department of Justice and the FSA printed transcripts that "uncovered wrongdoing on the part of 21 RBS employees, predominantly in relation to the setting of the bank's yen and Swiss franc Libor submissions".

It also included sections that revealed RBS collusion with interdealer brokers and an RBS yen trader engaged in wash trades to compensate brokers.

Widespread Misconduct with UBS

The FCA said "the misconduct was widespread".

It revealed that UBS made at least 330 written requests to Icap brokers for inappropriate submissions and also made oral requests to the brokerage, which "by their nature are not documented and so cannot be counted precisely".

Regulators said three brokers, including one manager, were central to the collusion, although at least seven other individuals, including another manager spanning three desks, also participated.

"Icap's risk management systems and controls were inadequate to monitor and oversee the relevant broking activity. There was no effective oversight of the brokers involved, which meant that they were able to conceal their misconduct," said the FCA in a statement.

"From October 2006 to November 2010, IEL did not audit the desk at the centre of the misconduct (the JPY Derivatives Desk).

"Icap's inadequate systems, controls, supervision and monitoring meant that the brokers' misconduct went undetected and continued for several years.