Banks fined record €1.7bn over benchmark interest rate rigging cartel

RBS, Citigroup and JP Morgan among banks fined by European commission for colluding to fix yen Libor and Euribor rates

theguardian.com, Jill Treanor, Wednesday 4 December 2013

The European commission said three banks and one broker had refused to
settle on other claims. Photograph: Olivier Hoslet/EPA

The interest rate-rigging scandal was reignited on Wednesday as the European commission levied a record €1.7bn (£1.4bn) fine on five major banks and a broking firm – including bailed out RBS – for colluding to fix crucial benchmark rates.

Joaquín Almunia, European competition commissioner, warned that further fines were on the cards as three banks and one broker had refused to settle on other claims being investigated by Brussels.

"This will not be the end of the story," said Almunia, who added that foreign exchange markets were also facing an investigation for potential manipulation.

The record-breaking fines – the first to be levied on a financial cartel – cover yen Libor and Euribor, the European equivalent of the rate set in London, and follow fines by financial regulators in the UK and US for attempts to manipulate the key interest rates.

"What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other," said Almunia.

For the first time two US banks – Citigroup and JP Morgan – were named in the interest rate scandal while other banks which had already been fined received fresh penalties. Royal Bank of Scotland will pay another £300m on top of £390m already handed over to US and UK regulators, adding to its public relations difficulties following a systems meltdown earlier this week and recent allegations, which it denies, that it has abused its small business customers.

Sir Philip Hampton, the chairman of RBS, said: "Today is another sobering reminder of those past failings and nobody should be in any doubt about how seriously we have taken this issue. The RBS board and new management team condemn the behaviour of the individuals who were involved in these activities. There is no place for it at RBS."

Barclays – the first bank to be fined for Libor rigging in June 2012 when it paid £290m – avoided another £570m fine for blowing the whistle on a cartel in Euribor while Swiss bank UBS escaped a £2bn fine for exposing the cartel in yen Libor rigging. The Swiss bank has already been fined £940m for offences related to the manipulation of the key benchmark rate.

The commission said the Euribor investigation focused on the period between September 2005 and May 2008 and the settlement involved Barclays, Deutsche Bank, RBS and Société Générale. In Yen Libor the banks involved in one or more of the infringements are UBS, RBS, Deutsche Bank, Citigroup and JP Morgan. The broker RP Martin facilitated one of the infringements by using its contacts with banks involved in settling Libor.

At a press conference to announce the fines, Almunia said more penalties would follow as some of the firms it had been investigating had failed to settle. "We would have preferred all the parties would have been ready to settle – it is easier for them and for us. Three banks and one broker informed us they were not ready to settle," he said.

This appeared to be reference to Crédit Agricole, HSBC and JP Morgan in relation to Euribor and the money broker Icap in relation to yen Libor.

JP Morgan said it has reached a €79m settlement over yen Libor but would defend itself against allegations of wrongdoing in relation to Euribor.

"Today's decision sends a clear message that the commission is determined to fight and sanction these cartels in the financial sector," Almunia said. "Healthy competition and transparency are crucial for financial markets to work properly, at the service of the real economy rather than the interests of a few."

The commission said these were the first two decisions concerning cartels in the financial sector since the start of the financial crisis in 2008.