Barclays Bank Plc

On 27 June 2012, the FSA imposed a penalty of £59.5 million on Barclays Bank PLC (Barclays) in accordance with section 206 of the Financial Services and Markets Act 2000. The fine was imposed for Barclays' breaches of Principles 2, 3 and 5 through misconduct relating to its submissions of rates which formed part of the London Interbank Offered Rate (LIBOR), and in respect of the submission of rates for the Euro Interbank Offered Rate (EURIBOR) setting processes. There was a risk that Barclays' misconduct would threaten the integrity of these benchmark reference rates. Barclays agreed to settle at an early stage of the FSA's investigation. Barclays therefore qualified for a 30% (stage 1) discount under the FSA's executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £85 million on Barclays. LIBOR and EURIBOR are benchmark reference rates fundamental to the operation of both UK and international financial markets, including markets in interest rate derivatives contracts. LIBOR and EURIBOR are by far the most prevalent benchmark reference rates used in euro, US dollar and sterling over the counter (OTC) interest rate derivatives contracts and exchange traded interest rate contracts. LIBOR and EURIBOR are used to determine payments made under both OTC interest rate derivatives contracts and exchange traded interest rate contracts by a wide range of counterparties including small businesses, large financial institutions and public authorities. Benchmark reference rates such as LIBOR and EURIBOR also affect payments made under a wide range of other contracts including loans and mortgages. The integrity of benchmark reference rates such as LIBOR and EURIBOR is therefore of fundamental importance to both UK and international financial markets. - Inappropriate submissions following requests by derivatives traders Barclays acted inappropriately and breached Principle 5 on numerous occasions between January 2005 and July 2008 by making US dollar LIBOR and EURIBOR submissions which took into account requests made by its interest rate derivatives traders (Derivatives Traders). At times these included requests made on behalf of derivatives traders at other banks. The Derivatives Traders were motivated by profit and sought to benefit Barclays' trading positions. The definitions of LIBOR and EURIBOR require submissions from contributing banks based on borrowing or lending in the interbank market. The definitions do not allow for consideration of derivatives traders' positions. It was inappropriate for Barclays to make US dollar LIBOR and EURIBOR submissions which took its Derivatives Traders' positions (or the positions of traders at other banks) into account. Barclays did not therefore observe proper standards of market conduct when making US dollar LIBOR and EURIBOR submissions. Barclays also breached Principle 5 on numerous occasions between February 2006 and October 2007 by seeking to influence the EURIBOR (and to a much lesser extent the US dollar LIBOR) submissions of other banks contributing to the rate setting process. Where Barclays made submissions which took into account the requests of its own Derivatives Traders, or sought to influence the submissions of other banks, there was a risk that the published LIBOR and EURIBOR rates would be manipulated. Barclays could have benefitted from this misconduct to the detriment of other market participants. Where Barclays acted in concert with other banks, the risk of manipulation increased materially. - Inappropriate submissions to avoid negative media comment Barclays acted inappropriately and breached Principle 5 on numerous occasions between September 2007 and May 2009 by making LIBOR submissions which took into account concerns over the negative media perception of Barclays' LIBOR submissions. Liquidity issues were a particular focus for Barclays and other banks dur the financial crisis and banks' LIBOR submissions were seen by some commentators as a measure of their ability to raise funds. Barclays was identified in the media as having higher LIBOR submissions than other contributing banks at the outset of the financial crisis. Barclays believed that other banks were making LIBOR submissions that were too low and did not reflect market conditions. The media questioned whether Barclays' submissions indicated that it had a liquidity problem. Senior management at high levels within Barclays expressed concerns over this negative publicity. Senior management's concerns in turn resulted in instructions being given by less senior managers at Barclays to reduce LIBOR submissions in order to avoid negative media comment. The origin of these instructions is unclear. Barclays' LIBOR submissions continued to be high relative to other contributing banks' submissions during the financial crisis. - Systems and controls failings Barclays breached Principle 3 from January 2005 until June 2010 (the Relevant Period) by failing to have adequate risk management systems or effective controls in place in relation to its LIBOR and EURIBOR submissions processes. Barclays had no specific systems and controls in place relating to its LIBOR and EURIBOR submissions processes until December 2009 (when Barclays started to improve its systems and controls). The extent of Barclays' misconduct was exacerbated by these inadequate systems and controls. Barclays failed, at a number of appropriate points during the Relevant Period, to review whether its systems and controls were adequate. - Compliance failings Barclays failed to conduct its business with due skill, care and diligence when considering issues raised internally in relation to its LIBOR submissions. Barclays therefore breached Principle 2. LIBOR issues were escalated to Barclays' Investment Banking compliance function (Compliance) on three occasions during 2007 and 2008. In each case Compliance failed to assess and address the issues effectively. Compliance's failures meant that Barclays' breaches of Principles 5 and 3 were allowed to continue. Compliance's failures also led to unclear and insufficient communication about issues to the FSA. - Penalty The integrity of benchmark reference rates such as LIBOR and EURIBOR is of fundamental importance to both UK and international financial markets. Barclays' misconduct could have caused serious harm to other market participants. Barclays' misconduct also created the risk that the integrity of LIBOR and EURIBOR would be called into question and that confidence in or the stability of the UK financial system would be threatened. The FSA therefore considers it is appropriate to impose a very significant financial penalty of £59.5 million on Barclays in relation to its misconduct during the Relevant Period. In determining the appropriate level of penalty, the FSA has had regard to mitigating factors. In particular, Barclays has provided extremely good co-operation during the course of the FSA's investigation. Barclays' co-operation has enabled the FSA to conduct its investigation efficiently and expeditiously. William Amos Head of Department, Retail 1