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RBS hit with £390 million Libor fine

Bailed out bank fined for Libor rigging

RBS results

The Royal Bank of Scotland (RBS) has become the third bank to receive a fine for breaching FSA Libor rules.

Today the Financial Services Authority (FSA) fined RBS for misconduct relating to the London Interbank Offered Rate (LIBOR). The bank has also received penalties from US regulators, taking its total fine up to £390m. 

RBS will recoup around £300 million from its staff bonus pool, and investment banking head John Hourican will step down.

‘Widespread misconduct’ by RBS

The charges brought against RBS relate to successful and attempted manipulation of the interbank lending rate. The bank has been fined £85m by the FSA, £207m by the Commodity Futures Trading Commission and £95m by the US Department of Justice.

The reason the fines are so large is because the Libor benchmark is fundamental to the operation of global financial markets – it is the interest rate at which banks lend to each other. It also dictates mortgage and loan rates. Our 60-second guide to Libor has more information on why it’s so important.

The FSA says that there were at least 219 requests from RBS employees for inappropriate Libor submissions, as well as countless unrecorded oral requests. The misconduct occurred in the UK, US, Japan and Singapore.

These inappropriate requests came from derivatives traders, who wanted to manipulate the Libor rate in order to improve their trading positions. In fact, RBS developed a business model that encouraged derivatives traders and Libor submitters to communicate with and influence each other, in order to make a profit. 

Inadequate Libor controls

Despite not having the proper controls in place, RBS told the FSA that its Libor monitoring was adequate. Although the bank reviewed its systems in March 2011, it failed to identify the risks that would come with Libor submitters being influenced by derivatives traders. RBS did not identify this risk until March 2012.

The charges brought against RBS cover the period between 2006 and 2010, which means the bank’s misconduct continued after it was partially nationalised in 2009. 

Banking industry reputation damaged

RBS is the third bank to be fined in relation to Libor, following Barclays and UBS. This is yet another nail in the coffin of consumer confidence in the banking industry. In fact, Which? research has found two-thirds of people (67%) think that bankers are unlikely to lose their job if they lie or cheat. 

In response to the RBS fines for Libor manipulation, Which? executive director, Richard Lloyd, said: ‘It is only right that RBS uses its bonus pot, and claws back bonuses from senior executives who presided over this scandal to pay for fines. Taxpayers should not have to foot the bill for yet another banking scandal.  

‘Those found guilty of illegal practice must be held to account and should face criminal prosecution. We want to see big change to fix our broken banking culture so that banks work for customers, not bankers.’

Which? has been campaigning for a change in banking, following a string of scandals that left consumer trust in bankers at an all-time low. You can sign up to our Big Change campaign to make banks work for customers, not bankers.

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