FCA issues £105m fine to Rabobank for Libor failings

The Financial Conduct Authority has fined Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) £105m for “serious, prolonged and widespread” misconduct relating to the London interbank offered rate.

Rabobank’s poor internal controls encouraged collusion between traders and Libor submitters and allowed systematic attempts at benchmark manipulation, the regulator said.

Libor is based on daily estimates of the rates at which a panel of banks borrow funds from one another.

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The FCA said between May 2005 and January 2011, Rabobank allowed derivatives and money market traders to:

• Make, or influence others at the bank to make Libor submissions that benefitted trading positions linked to sterling, dollar and yen Libor;

• Collude with individuals at other Libor panel banks and interdealer firms to influence yen and dollar Libor submissions made by other panel banks; and

• Collude with individuals at other Libor banks and interdealer broker firms who sought to influence Rabobank’s yen Libor submissions

This meant that the affected Libor submissions from Rabobank, and some of the Libor submissions made by other panel banks, didn’t fairly reflect the cost of inter-bank borrowing, undermining the overall integrity of Libor.

The FCA said Rabobank did not fully address these failings until August 2012, despite assuring the FCA in March 2011 that suitable arrangements were in place.

The £105m fine is the third highest ever imposed by the FCA or its predecessor, the Financial Services Authority, and the fifth penalty for Libor-related failures.

Rabobank cooperated with the FCA’s investigation and agreed to settle early, qualifying for a 30 per cent discount on its fine.

Tracey McDermott, the FCA’s director of enforcement and financial crime said: “Rabobank’s misconduct is among the most serious we have identified on Libor. Traders and submitters treated Libor submissions as a potential way to make money, with no regard for the integrity of the market. This is unacceptable.

“Rabobank’s flawed assurances and failure to get a grip on what was going on in its business were extremely disappointing. Firms should be in no doubt that the spotlight will remain on wholesale conduct and we will hold them to account if they fail to meet our standards.”

The FCA have now found over 500 instances of attempted Libor manipulation, directly or indirectly involving at least 9 managers and 19 other individuals based across the world.

At least one manager was actively involved in attempted manipulation and facilitated a culture where this practice appeared to be accepted, or even endorsed by the bank.

In April 2009, a yen Libor submitter informed Rabobank’s internal audit group that his submissions were based on direct instructions from traders, yet the bank failed to address the issue.