FSA Fines Barclays £59.5 Million for Manipulation of LIBOR
On 27 June 2012, the FSA published the final notice issued to Barclays Bank plc, detailing a £59.5 million fine for misconduct relating to its submission of rates that formed part of the London Interbank Offered Rate ("LIBOR") and the Euro Interbank Offered Rate ("EURIBOR"). This is the largest ever fine that the FSA has imposed. Final Notice.
In particular, Barclays breached the following Principles:
Principle 5 (market conduct) – Barclays was found to have breach Principle 5 by making US dollar LIBOR and EURIBOR submissions that took into account requests made by interest rate derivatives traders.
Principle 3 (management and control) – Barclays did not have adequate risk management systems or effective controls in place relating to its LIBOR and EURIBOR submission process.
Principle 2 (skill, care and diligence) – Barclays failed to conduct its business with due skill, care and diligence when considering issues raised internally relating to its LIBOR submissions.
In addition to the fine by the FSA, the U.S. Commodity Futures Trading Commission fined Barclays $200 million, and Barclays agreed to pay a penalty of $160 million as part of an agreement with the U.S. Department of Justice.
The Barclays settlement is the first settlement announced in connection with the LIBOR probe, with regulators investigating more than 20 banks.
Memoranda of Understanding Between FSCS, PRA and FCA Published
On June 26, the FSA published a draft memorandum of understanding ("MoU") between the Financial Services Compensation Scheme ("FSCS") and the new Prudential Regulation Authority ("PRA") and a second MoU between the FSCS and the new Financial Conduct Authority ("FCA"). MoU between FSCS and PRA. MoU between FSCS and FCA.
In particular the MoUs cover:
The roles of the FSCS, PRA and FCA;
Information sharing between the FSCS and the new regulators and confidentiality issues;
Funding the FSCS;
Co-ordination between the PRA and FCA on the oversight of the FSCS; and
Reporting obligations on the FSCS to the new regulators.
FSA Censures Kaupthing for Liquidity Monitoring Failures
On June 26, the FSA reported that it had issued a Final Notice (dated 18 June 2012) against Kaupthing Singer and Friedlander Limited (KSFL), the UK based subsidiary of the Icelandic banking group Kaupthing Bank Hf (KBHf). Final Notice.
The FSA found that KSFL breached Principle 2 of the FSA's Principles because it failed to consider promptly and properly whether liquidity stresses in KBHf would have a detrimental effect on its own liquidity position. KSFL did not give proper consideration to, or properly monitor, a special financing arrangement with its parent company in Iceland. In addition, when it started to have concerns about this liquidity arrangement, it failed to discuss these concerns with the FSA in a timely manner.
The FSA has published this notice to ensure that other regulated firms understand the importance of complying with the FSA's liquidity guidelines and that where compliance is dependent on liquidity arrangements with a parent company, the ability to exercise these arrangements is rigorously tested rather than assumed.
FSA Issues Final Notice to Former UBS Advisers Following Upper Tribunal Decision
On June 28, the FSA published final notices (dated 27 June 2012) it has issued to Laila Karan and Sachin Surendra Karpe, former UBS client advisers, relating to breaches concerning an unauthorised trading scheme. Final Notice for Laila Karan. Final Notice for Sachin Surendra Karpe.
The final notices impose a financial penalty of £1,250,000 on Mr. Karpe, and £75,000 on Mrs. Karan. Both individuals have been banned from carrying on any function relating to regulated activities carried on by any authorised or exempt persons, or exempt professional firm.
FSA Update on Derivatives Reform
On June 26, the FSA published a speech by David Lawton, FSA Acting Director of Markets, on recent progress made on derivatives reform. Speech.
Mr. Lawton reports that much has been achieved over the past year as regards meeting the G20 commitments to improve counterparty risk management and transparency in the over-the-counter (OTC) derivatives markets. In particular, the international standard setting bodies continue to facilitate the advancement of reforms across jurisdictions and industry has made good progress to increase standardisation of contracts and use of central clearing.
However, four outstanding areas remain:
rules for bilateral collateralisation of uncleared trades.
ensuring Regulators have a full range of tools to deal with recovery and resolution of central counterparty clearing houses (CCPs). EU legislation in this area is expected sometime this year.
getting agreement on how requirements will apply cross-border. The FSA believes that it is desirable to achieve a global system of regulation of OTC derivatives based upon mutual recognition and substituted compliance where possible.
ensuring the readiness of firms, both financial and non-financial, not currently clearing OTC derivative trades. Firms will need to be ready to comply with EMIR from January 2013.