More than 10 City workers are under investigation by the Financial Services Authority for rigging Libor, a top regulator said after Royal Bank of Scotland was fined £390m for manipulating the key benchmark rate.
Tracey McDermott, the FSA's enforcement director, said some bankers had decided "the rules did not apply to them" and that another five financial firms, including banks and inter-dealer brokers, remained under investigation as part of the on-going inquiry into the rigging of Libor, which is used to set the price on £300 trillion of financial products.
"I can assure you we are looking at individuals," she said as the FSA and US regulators, the Commodity Futures Trading Commission (CFTC) and the department of justice, published documents showing the widespread rigging of Libor at RBS.
A series of electronic exchanges linked RBS traders to those at other banks, particularly Swiss bank UBS, who submitted rates to the Libor panel. There was also unethical contact involving inter-dealer brokers who act as intermediaries, with promises of "sushi rolls" and "making love" in return for rigging Libor submissions.
"It's just amazing how Libor fixing can make you that much money … it's a cartel now in London," wrote one RBS trader specialising in yen Libor in an instant message sent in August 2007.
Libor is the London interbank offered rate and is set across 15 time frames of up to one year and in 10 currencies. Twenty-one individuals at RBS were involved in manipulating the yen and Swiss franc Libor "either falsely high … or falsely low", according to the CFTC, which in turn helped the profitability of swaps positions held by the bailed-out bank.
The documents published by the regulators said "corrupt payments" of £212,000 were made to unnamed inter-dealer brokers and that RBS "abetted UBS's attempts to manipulate" Libor in yen. The Swiss bank has already been fined £940m and two of its traders have been charged by the US regulators in connection to the scandal.
One of those charged, former UBS trader Tom Hayes, is named in documents filed by the US justice department as asking a RBS trader: "mate did you manage to spk [speak] to your cash boys". The response from "trader 3" at RBS indicating that he had attempted to change the rate was met with the comment "i owe you big time".
The justice department stressed that the charges against Hayes, who is facing extradition from the UK to the US, were "merely accusations and he is considered innocent unless and until proven guilty". The other former UBS trader charged by the US is Roger Darin.
The department secured a guilty plea from the Asian subsidiary of RBS to rigging Libor – as it did with UBS – which assistant attorney general Lanny Breuer described as "extraordinary results". He added: "Our message is clear: no financial institution is above the law."
Stephen Hester, chief executive of RBS, refused to identify the 21 individuals – out of a workforce of 137,000 – involved in the "wrong doing". Six staff were dismissed, including two managers, while six have been "severely disciplined" or were still involved in a disciplinary process and remain at the bank. Another eight left before disciplinary action could be taken while one was dismissed for misconduct not related to these findings.
One of those to be fired, Tan Chi Min, is bringing a case in Singapore of wrongful dismissal on the basis that the bank condoned the manipulation of Libor. He sent instant messages in April 2008 saying, "Nice Libor … our six-month fixing moved the entire fixing hahaha", according to transcripts filed in Singapore court.
The extent of the Libor rigging forced Sir Philip Hampton, chairman of RBS, to defend the role of Hester. The Libor manipulation had carried on for two years after Hester was parachuted into the bank following the £45bn taxpayer bailout in October 2008. The systems and controls inside the bank were considered inadequate by the FSA until last year.
"While the evidence shows that senior management was not involved in or aware of any wrongdoing, we accept that systems and controls were not as strong as they should have been and were not fixed quickly enough," said Hampton.
He made a contrast with Barclays, which when it was the first bank fined for rigging Libor had found that its top management had been aware of attempts to deliberately reduce submissions to the Libor panel during the 2007 and 2008 financial crisis. Barclays chief executive Bob Diamond resigned, as did chairman Marcus Agius and chief operating officer Jerry del Missier.
"It is important to make clear that, in contrast with some other banks, there is no evidence that any attempt was made by group management to suppress Libor submissions, in order to present a false picture of the group's funding costs. The findings against RBS concern the activities of traders," he said.
But regulators pointed to failures at RBS which had allowed the manipulation to take place by placing derivatives traders and submitters together on the same desk, heightening the conflict of interest between the profit motives of the traders and the responsibility of submitters "to make honest submissions". Even when they were separated – for business, not compliance reasons – the misconduct continued through Bloomberg chats and an internal instant messaging system.
The fallout of the Libor rigging is expected to continue for months while the FSA and regulators around the world continue their investigations. More immediately, though, Hampton and Hester are now preparing to face further questions on Monday from the members of the banking standard commission, chaired by the Tory MP Andrew Tyrie.
McDermott added that it would be some time before the FSA was able to give any indication if any of individuals under scrutiny – not all of them from RBS – would face penalties from the regulator.
guardian.co.uk © Guardian News and Media Limited 2010