Views on improving the integrity of global capital markets
07 February 2013

Strike Three in Libor Scandal – RBS Fined for Rate-Rigging

The foul stench of the Libor scandal lingers on. This week, Royal Bank of Scotland (RBS) became the third bank to settle with authorities over its involvement in the rate-manipulation affair, paying a combined total of £390 million (approximately $610 million) to the U.S. Commodity Futures Trading Commission, U.S. Department of Justice, and U.K. Financial Services Authority.

A new twist in this saga is the allegation that the setting of the rate in Tokyo (Tibor) involved banks colluding to fix the benchmark artificially higher in order to boost profits from mortgage products sold to households. This allegation is particularly troublesome as it is the first suggestion that rate manipulation carried a specific and explicit intent to profit from the expense of ordinary consumers.

A novelty with the RBS settlement is the revelation that regulatory fines will be paid out of the bank’s bonus pool. Part of the fines will be funded via claw-backs from deferred bonuses awarded in earlier years. This is a small mercy for U.K. taxpayers who own 82% of RBS; anything else would have been political suicide, such is the opprobrium.

A glimmer of hope lies among the initiatives that are underway globally to repair the weaknesses with interest rate benchmarks. Measures aimed at fixing the Libor process include giving regulators formal jurisdiction over rate submissions and criminal sanctioning powers, strengthened accountability and governance on the part of the administrators of interest rate benchmarks, and greater transparency over benchmark inputs, such as by corroborating rate submissions with actual transaction data.

As we’ve noted before, these steps are firmly welcomed. But with several more banks either implicated or still under investigation, public and investor trust will not be restored with the mere promise of stronger regulation in the future. In the short term, authorities must get rid of the stench by concluding their investigations as quickly as possible. Only then will the air clear, allowing the healing process to begin.


Photo credit: @iStockphoto.com/JohnFScott

About the Author(s)
Rhodri Preece, CFA

Rhodri Preece, CFA, is Senior Head of Industry Research for CFA Institute. He is responsible for building and maintaining the global research function at CFA Institute, including leading the planning, coordination, and creation of research content across CFA Institute research platforms, which include the Future of Finance, the CFA Institute Research Foundation, the Financial Analysts Journal, and the Enterprising Investor blog. Preece formerly served as head of capital markets policy EMEA at CFA Institute, where he was responsible for leading capital markets policy activities in the Europe, Middle East, and Africa region. Preece is a former member (2014-2018) of the Group of Economic Advisers of the European Securities and Markets Authority (ESMA) Committee on Economic and Markets Analysis. Prior to joining CFA Institute, Preece was a manager at PricewaterhouseCoopers LLP where he specialized in investment funds.

1 thought on “Strike Three in Libor Scandal – RBS Fined for Rate-Rigging”

  1. Stan Lau says:

    From my personal view, I really think the punishment is too small that it couldn’t prevent them from happening again. Technically speking, this is an economic crime, and I reckon one good way is that bannimg them from profit-making business associated with LIBOR for some period of time. Seperating their own interests and the public’s would be a better way than simply fining them.

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