RBS to face £500m criminal fine

The Royal Bank of Scotland Group plc (RBS), the UK’s biggest publicly owned bank by 81%, could face a fine upwards of £500 million ($800 million) for the role it played in the manipulation of the London Interbank Offering Rate (LIBOR).

As of now the bank will pay £208 million to the US Commodity Futures Trading Commission (CFTC), £97 million to the US Department of Justice and £87.5 million to the Financial Service Authority (FSA) in London, CTFC said in a statement today.

LIBOR is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London. (Bloomberg)

Those rates control more than $350 trillion in contracts worldwide from mortgages to complex derivative securities.

In a statement the FSA said that bank traders in the US, UK, Japan and Singapore from 2006 until 2010, including over 21 traders and one manager at RBS, had made multiple attempts to manipulate the Japanese Yen and Swiss Franc to benefit their trading positions.

According to the British Financial Services Authority RBS made more than 219 documented requests submitting inaccurate exchange rate offers. RBS’s Securities Japan, their Japanese subsidiary, will plead guilty to this.

The fine is the third charge racked up against those banks involved in the manipulation of aggregate exchange rates. In June, Barclays plc was charged £290 million and then UBS AG, the Swiss bank, paid £1 billion in December when its Japanese firm pleaded guilty of the charge.

Due to RBS being a public bank, the fines would come directly from the tax payers in Britain. Acknowledging this, Chancellor George Osborne said that the US portion of the penalty will be paid by those employed by RBS – none of which were those involved in the financial scandal.

Teresa Pearce, of the Labour party, said: “We hold an enormous number of shares in that bank which ultimately need to be sold. If its reputation is that there were things going on that shouldn’t have been – and other things may still be going on – then the value of those shares will plummet. We need to know the money used to prop it up was well spent.” 

As of March 2011 the conduct involved in LIBOR submissions has been regulated at RBS. It has now entered into a deferred prosecution arrangement which allows RBS to avoid being charged and instead meet governmental reform and penalties, that if not met will lead to ready prosecution. Hopefully this will allow RBS to continue activity in the US.

The LIBOR investigations continue with ten financial regulators analysing accounts and documentations at 20 different financial institutions.

 Patrick Corby