Banking StandardsWritten evidence from the Financial Services Authority


1. This memorandum is prepared in response to the Parliamentary Commission on Banking Standards’ questions following the FSA’s enforcement action against RBS in relation to LIBOR.

Further Explanation of Financial Penalties Levied

2. The misconduct in the UBS and Barclays cases was similar in some ways to the misconduct described in the RBS Final Notice. Each case, however, had unique features which ultimately led to the imposition of different financial penalties.

Why was the RBS fine £40 million more than Barclays and £75 million less than UBS?

3. The LIBOR misconduct at Barclays involved:

(a)a similar number of individuals as in RBS;

(b)more (and more senior) managers than RBS;

(c)involved more serious USD misconduct than in RBS, including submitters acting on derivatives traders requests on numerous occasions;

(d)concerned the additional issue of inappropriate submissions to avoid negative media comment (“low balling”) whereas RBS did not; and

(e)collusive behaviour with other panel banks of a similar degree to RBS.

4. The Barclays penalty also took into account the firm’s extremely good cooperation which led to an early outcome to the investigation. This resulted in a significant reduction to the financial penalty levied.

5. RBS featured issues not seen in other cases. Specifically:

(a)derivatives traders acting as substitute submitters;

(b)the creation of the STM desk which sat submitters in close proximity to derivatives traders and encouraged unrestricted communication between the two groups (this resulted in an unquantifiable number of in-person requests);

(c)money market traders taking into account the profitability of forthcoming transactions as a factor when making (or directing others to make) LIBOR submissions;

(d)derivative trader requests continuing to a later date (until November 2010, compared to June 2009 for Barclays);

(e)significant collusion with other institutions. In contrast to Barclays, RBS’s collusive behaviour involved brokers;

(f)the use of, and failure to identify, wash trades to build relationships with traders which were then used to facilitate LIBOR manipulation; and

(g)RBS provided an attestation to the FSA that its systems and controls were adequate when they were not.

6. The FSA considered the above-referenced factors in the context of the FSA’s overall approach to the determination of financial penalties (as mentioned in our 29 January 2013 follow up memorandum to the PCBS (the “29 January Memorandum”)) to determine the appropriate financial penalty in the RBS case. As noted in the 29 January Memorandum, there is no formal weighting of any factors; rather the FSA’s determination is made after an assessment in the round. However, the FSA viewed the flawed attestation, RBS’s failure to identify and manage the risks of biased submissions, the fact that the misconduct continued well into 2010 (even after RBS had commenced an internal investigation into LIBOR-related misconduct), the “wash trade” misconduct, and the absence of extremely good cooperation, as key factors which led to the imposition of a higher financial penalty on RBS than on Barclays.

7. In contrast to the misconduct described in the RBS notice, the LIBOR misconduct at UBS involved:

(a)many more individuals (ie, 40 in UBS versus 21 in RBS);

(b)more LIBOR currencies (five in UBS versus three in RBS);

(c)much more extensive (in terms of duration, breadth, scale and openness) abuse than RBS;

(d)an arrangement whereby, for a number of years, derivatives traders were also submitters (the “trader-submitter conflict”);

(e)knowledge of manipulation (as well as the risks arising from the trader-submitter conflict) by senior managers to a much greater extent than RBS; and

(f)a significantly greater volume of documented collusive requests than RBS, including through brokers and other panel banks.

8. In contrast to RBS and Barclays, UBS did not qualify for a Stage 1 discount of 30% (it received a Stage 2 discount of 20%).

9. These factors led to the penalty imposed on UBS being higher than that on either Barclays or RBS.

Communications Referenced in Final Notice and 6 February Memo to the PCBS

10. Disclosure of certain documents referenced in the Final Notice has been requested. We attach:

(a)Letter dated 10 February 2011 from FSA to RBS requesting that RBS attest to the adequacy of its systems and controls for LIBOR submissions (Final Notice reference paragraph 93).

(b)Attestation from RBS dated 21 March 2011 regarding the adequacy of its systems and controls for LIBOR submissions (Final Notice reference paragraph 96).

11. The other documents requested are subject to statutory confidentiality restrictions on disclosure, as they are confidential documents within the meaning of section 348 of the Financial Services and Markets Act 2000. This means the FSA cannot disclose them without the consent of the person from whom the FSA obtained the information and the person to whom the information relates.

Details Regarding Approved Status of 21 Individuals Implicated

12. Of the 21 individuals implicated in the misconduct, 15 were approved during the Relevant Period and six are currently approved. Of the six, one is approved at another firm and the rest are approved at RBS entities. It should be noted that while many of the individuals were approved during the Relevant Period, their conduct in relation to LIBOR fell outside the scope of their controlled functions.

7 February 2013

Prepared 19th June 2013