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Banks Fined 1.71 Billion Euros for Benchmark Interest Rate Cartels

On 4 December, the European Commission announced total fines of over €1.7bn on eight international financial institutions for colluding to manipulate benchmark interest rates in Euro (EURIBOR) and Yen (JPY LIBOR and TIBOR).   Seven banks and one broker have entered into cartel settlements acknowledging their participation and accepting liability.  A number of other parties and individuals remain under investigation. 

“…the Commission is determined to fight and sanction these cartels in the financial sector.  Healthy competition and transparency are crucial for financial markets to work properly, at the service of the real economy rather than the interests of a few.”

Joaquin Almunia, Commission Vice-President in charge of competition policy, European Commission


EURIBOR (Euro Inter-Bank Offered Rate), LIBOR (London Inter-Bank Offered Rate) and TIBOR (the Toyko Inter-Bank Offered Rate) are all benchmark interest rates intended to reflect the cost of interbank lending in Euros or Yen in the Eurozone, London or Toyko respectively.  These benchmarks are based on the relevant panel banks’ individual quotes submitted daily to the relevant calculation agent and should represent the average cost to banks of unsecured borrowing for a given currency and time period.  Banks are meant to submit the actual interest rates they are paying, or would expect to pay, for borrowing from other banks.  This can be a good measure of confidence in financial markets. 

Why are these rates important?

They are linked to the value of interest rate derivatives – such as forward rate agreements, interest rate swaps, interest rate options and interest rate futures – which are used by banks or companies to manage the risk of interest rate fluctuations.  Investment banks compete with each other in the trading of these derivatives.  The level of benchmark rates can affect the cash flows that a bank receives from - or what it needs to pay to - a counterparty to a derivative contract; and these can include small businesses, large financial institutions or public authorities. 

Moreover, these benchmarks are used to price trillions of pounds worth of financial contracts, including loans and mortgages to businesses and individuals.  The integrity of benchmark reference rates such as LIBOR is therefore of fundamental importance to both UK and international financial markets.

What conduct has come under fire?

There were two separate cartels: 

  1. The Euro interest rate derivative cartel (“EIRD”) operated between September 2005 and May 2008.  It involved traders from different banks discussing their bank’s submissions for the calculation of EURIBOR as well as their trading and pricing strategies. 
  2. The Yen interest rate derivative cartel (“YIRD”) was in existence during the period 2007 to 2010, with separate infringements during this time lasting between 1 and 10 months.  The collusion included discussions between traders of the participating banks on certain JPY LIBOR submissions.  The traders also exchanged commercially sensitive information on trading positions or future JPY LIBOR / Euroyen TIBOR submissions. The broker RP Martin facilitated one of the infringements by attempting to influence the JPY LIBOR submissions of a number of panel banks that did not participate in the cartel.


How did the European Commission discover these cartels?

Barclays revealed the existence of the EIRD cartel to the European Commission.  The Commission then made unannounced “dawn raid” inspections in October 2011 and opened formal proceedings against those involved in March 2013.  UBS revealed the existence of the YIRD cartel to the European Commission, which then opened proceedings in February 2013.

Haven’t the banks already been investigated and sanctioned for this?

Since 2009, the Financial Services Authority (“FSA”) (now Financial Conduct Authority or “FCA”) and regulators and public authorities in a number of different jurisdictions – including the US, Canada, Japan, Switzerland and the European Union – have been investigating a number of institutions for alleged misconduct relating to LIBOR and other benchmarks, including EURIBOR and TIBOR.  A number of financial institutions have already been fined by their respective financial services regulators.  The individuals involved have also been disciplined or dismissed.  A few face criminal charges for fraud and potential extradition to the US and others may yet be fined by the FCA and have their “approved person” status withdrawn.  Legislative responses at national and EU level are also underway.  The announcements have come thick and fast – the ‘time line’ below summarises the main civil, criminal, regulatory and legislative responses to benchmark manipulation.  However, the European Commission feels strongly that “investigations of other regulators does not relieve the Commission from its responsibility to also ensure that the rules of fair competition are respected in the banking sector.

In what way did EURIBOR/TIBOR/LIBOR collusion infringe competition law?

Article 101 of the Treaty on the Functioning of the European Union prohibits agreements that “have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions […]”.  It therefore outlaws anti-competitive collusion between competitors – in this case between competing traders in derivatives markets.  Even where conduct falls short of actual price fixing, the exchange of information on prices (or other commercially sensitive information) may in itself infringe Article 101, the concern being that this can lead to coordination and therefore diminish competition that would otherwise be present.  

The consequences to a company of breaching competition law can be serious.  In particular, infringing firms may be fined up to 10% of their worldwide turnover. Third parties can also bring an action for damages or, in appropriate cases, an injunction in the civil courts. In the UK, the Enterprise Act 2002 makes it a criminal offence for individuals to enter into cartel arrangements (such as price fixing).  Furthermore, directors of companies that have infringed UK or EU competition law face potential disqualification as a director.

How the cartel fines were set

The fines were set according to the Commission’s 2006 Guidelines on fines, taking into account the banks’ value of sales for the products concerned within the EEA, the “very serious nature” of the infringements, their geographic scope and respective durations.  Barclays received full immunity for revealing the EIRD cartel, as did UBS for bringing the YIRD to the Commission’s attention.  Other banks received a fine reduction for co-operating with the investigation under the Commission’s leniency programme.  Deutsche Bank, RBS and Societe Generale received a further 10% reduction in their fines for agreeing to settle the EIRD cartel case with the Commission; a similar reduction was granted to RBS, Deutsche Bank, Citigroup and JP Morgan for the YIRD cartel. 

Nonetheless, the combined fines imposed on Deustche Bank in the two Commission decisions (€725m) represent the second highest cartel fine ever, and UBS avoided a fine of around €2.5 billion.  The level of fines reflects the fact that anti-cartel enforcement is a top priority for the Commission, especially in the financial sector.  

Is this the end of the story?

No – far from it.  HSBC, Credit Agricole and JP Morgan have not settled and so are still under investigation for alleged involvement in the EIRD cartel.  ICAP remains under investigation for alleged involvement in the YIRD cartel.  The European Commission investigations into the manipulation of Swiss franc benchmarks and FOREX continue.  Meanwhile, former UBS and Citigroup trader Tom Hayes, and two brokers from RP Martin - Terry Farr and James Gilmour - are charged with eight counts of conspiracy to defraud with staff from at least 10 banks and brokerages between 2006 and 2010, and their trials are not expected before January 2015.   Those who are named as co-conspirators may yet face investigation, whether here or in the US.  The banks/brokers involved are also bracing themselves for potential damages actions in the EU for financial harm caused by their anti-competitive conduct; US lawsuits by those (such as Fannie Mae) which seek compensation for losses resulting from benchmark manipulation; as well as US class actions, of which there are already several. 

So, this scandal looks set to rumble on for some time and have long term ramifications for the financial sector. 


The LIBOR timeline

Libor manipulation

regulator action

regulator action

Criminal cases


September 2005 - May 2008Euro interest rate derivative (“EIRD”) cartel in operation. Barclays, Deutsche Bank, RBS and Societe Generale have accepted that, during this time, their traders discussed the banks’ submissions for the calculation of EURIBOR as well as their trading and pricing strategies.
2007 - 2010Yen interest rate derivative (“YIRD”) cartel operated, manipulating short term interest rate benchmarks in Japanese Yen and TIBOR.  The banks UBS, Citigroup, Deutsche Bank, RBS and JP Morgan and broker RP Martin have admitted to colluding on certain JPY LIBOR and TIBOR submissions and exchanging commercially sensitive information during this time.
December 2007The FSA says it was contacted by a Barclays compliance officer with concerns about LIBOR rates.  Another Barclays employee separately contacts the US Commodity Futures Trading Commission (“CFTC”) with similar concerns. 
2008The Wall Street Journal publishes a report that questions LIBOR integrity. Meanwhile, the British Bankers Association ("BBA") (which administered LIBOR) and the New York Fed start to look into LIBOR and have discussions with the Bank of England. 
During 2008US regulatory authorities start investigating.  FSA provides support to CFTC by obtaining documents and information from Barclays.
November 2009BBA circulates revised guidelines for setting LIBOR and requiring the banks to have their rate submission procedures audited. They do not seem to have had a significant effect although by 2010 some banks have started to improve internal systems and controls.
Late 2010First CFTC / FSA regulatory interviews were conducted on a joint basis in late 2010.
October 2011

European Commission proposes to replace the Market Abuse Directive 2003 with a Regulation on Market Abuse (MAR) and a Directive on criminal sanctions for market abuse.    http://europa.eu/rapid/press-release_IP-11-1217_en.htm?locale=en.

October 2011TheEuropean Commission ‘dawn raids’ the parties suspected of involvement in the EIRD cartel. 
Spring 2012FSA / CFTC review of documents and interviews with key individuals draws to a close. The regulators then enter settlement negotiations with Barclays.
June 2012Barclays fined $200m by the CFTC, $160m by the US Department of Justice (“DoJ”) and £59.6m by the UK FSA for attempted manipulation of the LIBOR and EURIBOR rates.
July 2012EuropeanCommission proposes amendments to prohibit the manipulation of benchmarks, including LIBOR and EURIBOR, and make such manipulation a criminal offence: http://europa.eu/rapid/press-release_IP-12-846_en.htm?locale=en. 
July 2012UKGovernment asks Martin Wheatley (chief executive of new FCA) to conduct an independent review of the LIBOR-setting framework. 
July 2012The Serious Fraud Office launches a criminal investigation into LIBOR manipulation.
September 2012Wheatley’s independent review of LIBOR setting and recommendations are published, including a 10 point plan for comprehensive LIBOR reform.  UK government agrees to accept all the recommendations and press for legislation implementing them.   https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/191762/wheatley_review_libor_finalreport_280912.pdf
December 2012UBS agrees to pay US Department of Justice and Commodity Futures Trading Commission $1.2bn, £160m to the UK FSA, and 60m CHF to the Swiss Financial Market Supervisory Authority for its role in LIBOR rigging.
December 2012US Justice Department announces it will seek the extradition of two former senior UBS traders (Tom Hayes and Roger Darin) who were charged with conspiracy, fraud and a price-fixing violation in relation to LIBOR rigging.
February 2013European Commission opens proceedings into those alleged to be party to the JPY LIBOR and TIBOR cartel.
February 2013FSA fines RBS £87.5m for misconduct relating to LIBOR.  http://www.fsa.gov.uk/library/communication/pr/2013/011.shtml. It’s also fined in the US; $325m by the CFTC and $150m by the DoJ and is charged with two counts of wire fraud.
February 2013European Commission confirms it has widened its investigation to look at possible manipulation of Swiss franc benchmarks by banks and brokers.  In December 2013, it states that these investigations are ongoing.
March 2013European Commission opens formal proceedings against those alleged to be party to the EIRD price fixing cartel.
March 2013The FSA publishes new rules and regulations for financial benchmarks, to take into account the findings of the Wheatley Review and the Financial Services Act 2012. Policy Statement PS13/6 came into force on 2 April 2013.
April 2013UK Financial Services Act 2012 came into force, bringing the setting and administration of LIBOR within the scope of UK regulation, making the submission of LIBOR a regulated activity and creating a new offence of manipulating a specified financial benchmarks.
June 2013Former UBS and Citigroup trader Tom Hayes charged by police with eight counts of conspiracy to defraud for allegedly attempting to rig global benchmark interest rates.  This follows a year-long SFO investigation. https://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2013/trader-charged-in-libor-investigation.aspx.
June 2013It's reported that the FCA is looking into possible FOREX manipulation by traders. 
July 2013It is confirmed that Euronext NYSE will take over administration of LIBOR from BBA.
September 2013ICAP settles allegations that it had been involved in manipulating LIBOR.  ICAP paid $65m to the US Commodity Futures Trading Commission and £14m to the UK FCA.  The US Department of Justice charges three former employees.  In addition, three of its former traders were charged in the US with several counts of wire fraud.
September 2013European Commission proposes draft legislation to help restore confidence in the integrity of benchmarks following LIBOR and EURIBOR scandals.  http://europa.eu/rapid/press-release_IP-13-841_en.htm.
October 2013Swiss regulator FINMA investigates possible FOREX manipulation at several banks.
October 2013European Commission announces it's conducting a preliminary investigation into possible FOREX manipulation.
October 2013Dutch, US and UK financial regulators fine Dutch bank Rabobank a total of $1bn for serious LIBOR misconduct – £105m by the FCA http://www.fca.org.uk/news/the-fca-fines-rabobank-105-million-for-serious-libor-related-misconduct.
December 2013European Commission announces fines against seven banks and one broker for JPY LIBOR and EURIBOR cartels.  http://europa.eu/rapid/press-release_IP-13-1208_en.htm.

For further information, please contact Rachel Iley - Senior Asscociate, Competition & Regulatory