Bloomberg News

U.K. FSA Is Probing Cross-Border Allegations in Libor Case

February 21, 2012

(Updates with McDermott comment in fourth paragraph.)

Feb. 21 (Bloomberg) -- Britain’s Financial Services Authority is pursuing “significant cross-border investigations” related to the interest rate at which banks lend to each other, its acting head of enforcement said.

The regulator is probing “alleged misconduct” tied to the London interbank offered rate, Tracey McDermott said in a speech in London today, the first public disclosure that the agency was reviewing Libor.

The FSA is probing whether banks’ proprietary-trading desks exploited information they had about the direction of Libor to trade interest-rate derivatives, potentially defrauding their firms’ counterparties, two people familiar have said.

“We continue to have a challenging pipeline of important investigations keeping our team busy,” McDermott said.

The rate, a benchmark for about $360 trillion of financial products worldwide, is derived from a survey of banks conducted daily on behalf of the British Bankers’ Association in London. The lenders are asked how much it would cost them to borrow from one another for 15 different periods, ranging from overnight to one year, in currencies including dollars, euros, yen and Swiss francs. After excluding a predetermined number of quotes, those remaining are averaged and published for each currency by the BBA before noon.

London, Tokyo

Regulators worldwide are investigating whether banks attempted to manipulate the London, Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor. The U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission, U.S. Justice Department, and Japan’s Financial Services Agency are all involved. The probes are being conducted separately, with regulators sharing some information.

The U.K. FSA is investigating whether banks’ Libor submissions reflected their actual cost of borrowing and is scrutinizing market data for potential anomalies, another person familiar with the investigation said. The watchdog is scanning e-mails between bankers for code words that could be used to manipulate Libor, a person familiar with the case has said.

HSBC Holdings Plc, Barclays Plc and Royal Bank of Scotland Group Plc are among banks that have said they’ve received requests for information from regulators. RBS, the U.K.’s largest government-owned lender, has dismissed at least four employees in connection with the probes, two people briefed on the move have said.

UBS AG, which is cooperating with authorities in the case, has also suspended a number of employees as part of an investigation into its interest-rate submissions, another person familiar with the case said.

The FSA, which is to be replaced by two new regulatory agencies next year, has been issuing more fines and pursuing more criminal cases after being criticized for its leniency during and after the global financial crisis that reached its height after the 2008 collapse of Lehman Brothers Holdings Inc.

--Editors: Christopher Scinta, Heather Smith

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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