Barclays yesterday picked up the unwanted record for the biggest fine - ÂŁ59.5
million (US$92.5 million) - ever imposed by the UK financial regulator,
for misconduct relating to how key interbank interest rates were set.
The fine formed part of a ÂŁ290 million penalty imposed by the UK and US
authorities.

The Financial Services Authority fined the UK-listed group for what
it called “misconduct relating to the London Interbank Offered Rate
(LIBOR) and the Euro Interbank Offered Rate (EURIBOR).”

Robert Diamond, the bank’s CEO, said he and a group of his senior colleagues will forgo any annual bonus this year.

The FSA said that it is pursuing a number of other cross-border
investigations into this area of interbank rates, but did not disclose
any names of institutions involved.

Besides the FSA fine, the rest of the ÂŁ290 million penalty came from a
non-prosecution agreement with the US Department of Justice and a
settlement with the US Commodity Futures Trading Commission CFTC.

Barclays co-operated fully during the FSA’s investigation, the FSA
said, and the bank settled at an early stage, obtaining a 30 per cent
discount; otherwise, it would have been fined ÂŁ85 million.

The bank has also been granted “conditional leniency” from the
anti-trust arm of the DOJ in connection with potential US antitrust law
violations with respect to financial instruments that reference EURIBOR, Barclays said in a separate statement.

The ÂŁ290 million settlement is a huge embarrassment for a bank that
had managed, unlike some of its peers, to avoid the need for big
taxpayer-funded bailouts in the aftermath of the 2008 credit crunch.

“The events which gave rise to today’s resolutions relate to past
actions which fell well short of the standards to which Barclays aspires
in the conduct of its business. When we identified those issues, we
took prompt action to fix them and co-operated extensively and
proactively with the authorities,” Diamond said in a statement.

“I am sorry that some people acted in a manner not consistent with
our culture and values. To reflect our collective responsibility as
leaders, Chris Lucas, Jerry del Missier, Rich Ricci and I have
voluntarily agreed with the board to forego any consideration for an
annual bonus this year,” Diamond said.

FSA fine

“Barclays’ breaches of the FSA’s requirements encompassed a number of
issues, involved a significant number of employees and occurred over a
number of years,” the FSA said.

Its misconduct included making submissions which formed part of the
LIBOR and EURIBOR setting process that took into account requests from
Barclays’ interest rate derivatives traders.  These traders were
motivated by profit and sought to benefit Barclays’ trading positions,
the FSA said. Other failings included “seeking to influence the EURIBOR
submissions of other banks contributing to the rate setting process”, it
said, and “reducing its LIBOR submissions during the financial crisis
as a result of senior management’s concerns over negative media
comment”.

Barclays also had inadequate systems and controls in place relating
to its LIBOR and EURIBOR submissions processes until June 2010 and the
bank did not review its systems and controls at a number of appropriate
points, the FSA said. The bank also did not tackle issues concerning its
LIBOR submissions when these were escalated to Barclays’ investment
banking compliance function in 2007 and 2008, the FSA said.

“Barclays’ misconduct was serious, widespread and extended over a
number of years.  The integrity of benchmark reference rates such as
LIBOR and EURIBOR is of fundamental importance to both UK and
international financial markets.  Firms making submissions must not use
those submissions as tools to promote their own interests,” Tracey
McDermott, acting director of enforcement and financial crime, said.

“Making submissions to try to benefit trading positions is wholly
unacceptable.  This was possible because Barclays failed to ensure it
had proper controls in place.  Barclays’ behaviour threatened the
integrity of the rates with the risk of serious harm to other market
participants,” she said.

The British Bankers’ Association, the body representing UK banks, is
undertaking a review of the way LIBOR is set and will publish its
findings shortly.

Professor Philip Booth, editorial director of the UK-based Institute
of Economic Affairs, commented on the case's implications for the
inter-bank interest rate market. 

“The
LIBOR scandal should raise the question of whether we need a financial
regulator. Clearly, the FSA were not able to prevent the manipulation of
the interest rates used to calculate LIBOR – they are only acting after
the fact. If this is a matter of fraud, then it should be treated as
such and Barclays – or the employees - should be taken through the
normal court processes rather than being fined by a government bureau," he said.

"If, on the other hand, the problem is not fraud, then the `LIBOR club' itself
– administered by the BBA - should administer sanctions. If necessary,
members who abuse the system could be suspended. Private rule-making and
enforcement has a glorious history within the London Stock Exchange.
Since statutory regulation, behaviour in financial markets has not
improved and regulation has become bureaucratic, misdirected and
arbitrary," Professor Booth added.