FCA’s Libor Penalties Continue to Roll In

The Libor scandal continues to cast a shadow over the reputations of financial institutions.

In May 2014 interdealer broker RP Martin joined a long line of prominent City names, including RBS and Barclays that have suffered fines at the hands of the FCA in relation to the rate rigging scandal.

The £1.36m ($2.3m) fine added to an already hefty tally racked up by the FCA against big name institutions since the Libor scandal broke in 2012. However, RP Martin’s fine was reduced significantly when it was revealed that the firm faced collapse if it was required to pay in full.

RP Martin’s FCA Libor Penalty

RP Martin was the first brokerage to see staff arrested over the scandal in 2012 and became the second interdealer broker to suffer a fine; rival ICAP was penalised in 2013 both in the UK and the US. RP Martin will have to pay the FCA £630,000 to settle allegations that it manipulated Libor, the London Interbank Offered Rate.

This is the first time that the FCA has reduced a fine because a firm was unable to pay. FCA rules state that fines relating to conduct must be reduced if the firm’s ability to continue doing business is put at risk.

RP Martin was already under financial pressure from other fines that had been levied against it in relation to the Libor scandal, including $1.2m to US authorities and 200,000 Euros to the European Commission.

The firm accepted the FCA fine and stated that it had restructured the firm’s governance, systems and controls, and compliance procedures in the last twelve months.

The Role of Interdealer Brokers in the Libor Scandal

Interdealer brokers play an important role in the financial markets, particularly bond and currency markets, by matching trades between other financial institutions.

The FCA allegations focused on alleged collusion between brokers at RP Martin and a trader at UBS to manipulate Libor. The allegations suggested that brokers were guilty of using misinformation and ‘spoof’ orders to manipulate the rate for Japanese Yen. In return the brokers were rewarded with ‘wash trades’ that provided no commercial purpose to the traders but generated commissions for the brokers.

A number of individual brokers were believed to be part of the scheme.

Comment

Although the Libor scandal has presented examples of outright illegality in some cases, there is a consistent theme of poor oversight running through the FCA’s findings. Regulatory compliance is now a clear priority for both firms and individuals. For specialist advice regarding compliance issues or FCA investigations contact James Crighton jcrighton@rollingsons.co.uk or telephone 0207 611 4848.