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Felix Shipkevich February 6, 2013

The U.S. Commodity Futures Trading Commission (CFTC) today announced an Order against The Royal Bank of Scotland PLC and RBS Securities Japan Limited. The CFTC settled charges of successful manipulation, attempted manipulation, and false reporting relating to LIBOR for Yen and Swiss Franc. These benchmark interest ranks are imperative to financial markets and the public. According to a press release issued by the CFTC, the Order requires RBS to pay $325 million civil monetary penalty, to cease and desist from further violations as charged, and to take specified steps to ensure the integrity and reliability of LIBOR and other benchmark interest rate submissions – including improving related internal controls.

From CFTC’s Director of Enforcement: David Meister

The integrity of LIBOR depends on truthful information provided by a select group of some of the world’s most important banks. The public is deprived of an honest benchmark interest rate when a group of traders sits around a desk for years falsely spinning their bank’s LIBOR submissions, trying to manufacture winning trades. That’s what happened at RBS.

The Order Against The Royal Bank of Scotland and RBS Securities Japan Limited

From 2006 to 2010, RBS is alleged to have made hundreds of attempts to manipulate Yen and Swiss Franc LIBOR, to have made false LIBOR submissions to benefit its derivatives and money market trading positions, and to have succeeded at times in manipulating Yen and Swiss Franc LIBOR. In some instances, the RBS is alleged to have aided and abetted other panel banks’ attempts to manipulate those same rates. The Order also found misconduct involved in more than a dozen RBS derivatives and money market traders, one manager, and multiple offices around the world – including London, Singapore, and Tokyo. Moreover, the CFTC’s Order also found unlawful conduct continued even after RBS traders learned that the CFTC commenced a LIBOR investigation into the organization.

Penalties for the Organizations

In light of this Order, the CFTC imposed penalties of more than $1.2 billion on banks for manipulative conduct, regarding LIBOR submissions and other benchmark interest rates. This requires each bank to comply and implement specifying factors upon which submissions should be made, including making the determination of submissions transactions focused, and monitoring internal controls and policies needed to ensure integrity and reliability of submissions. With these new factors, each bank represents that its benchmark interest rate submissions are “a rigorous and honest assessment of information, and shall not be influenced by internal or external conflicts of interest, or other factors or information extraneous to any rules applicable to the setting of a benchmark interest rate,” according to the CFTC’s press release on the Order.

Gary Gensler on RBS Settlement

According to a statement from Chairman Gary Gensler:

Today’s Order against RBS demonstrates yet another clear case of a bank falsely reporting and attempting to manipulate or successfully manipulating benchmark rates to increase trading profits. Such false reporting of benchmark rates undermines the integrity of markets and shakes the public’s trust in our financial system.

U.S. Department of Justice

Regarding actions by the U.S. Department of Justice, RBS Securities Japan agreed to plead guilty to criminal charges of wire fraud, and The Royal Bank of Scotland plc entered into a deferred prosecution agreement, continuing to cooperate with the U.S. Department of Justice in exchange for the deferral of criminal wire fraud and antitrust charges – ultimately accepting a penalty of $150 million. Additionally, the United Kingdom Financial Services Authority (FSA) issued a Final Notice regarding its enforcement action against The Royal Bank of Scotland PLC, imposing a penalty of £87.5 million, or approximately $137 million.

Read more for a full account of RBS misconduct.