Release Date: 28th July 2014
To access the original FCA document, click here.
Summary
The Financial Conduct Authority (FCA) has imposed a significant fine of £105 million on Lloyds Bank plc and Bank of Scotland plc, both part of the Lloyds Banking Group, for serious misconduct related to the Special Liquidity Scheme (SLS), the Repo Rate benchmark, and the London Interbank Offered Rate (LIBOR).
Of this fine, £70 million is attributed to their attempts to manipulate the fees payable to the Bank of England for their participation in the SLS. This scheme was a crucial part of the government’s strategy to support UK banks during the financial crisis by allowing them to swap illiquid assets for Treasury bills, thereby enhancing their liquidity. The manipulation involved the Repo Rate benchmark, where Lloyds and Bank of Scotland artificially inflated their submissions. This manipulation aimed to narrow the spread between the Repo Rate and LIBOR, reducing the fees they were required to pay under the SLS, ultimately benefiting at the taxpayer’s expense.
Additionally, the banks engaged in various inappropriate practices concerning LIBOR between May 2006 and June 2009. These included making submissions that considered their profit and loss positions, colluding with Rabobank to influence JPY LIBOR rates, and manipulating GBP and USD LIBOR submissions to avoid negative media attention and perceptions about their financial stability.
The FCA’s investigation revealed that 16 individuals at these firms, including seven managers, were directly involved in or aware of the misconduct relating to LIBOR, with one manager also implicated in the Repo Rate manipulation.
This case is significant not only because of the financial penalty but also as it reflects broader failings in market conduct and risk management within the firms. These actions breached two fundamental FCA principles aimed at ensuring market integrity and proper conduct. The firms’ early settlement agreement with the FCA qualified them for a 30% discount on the fines, which would have otherwise totalled £150 million.
The FCA’s enforcement action against Lloyds Banking Group is part of a series of actions aimed at addressing misconduct in benchmark settings, following similar penalties imposed on other major banks like Barclays, UBS, and RBS. These cases underline the importance for all financial institutions to adhere strictly to regulatory standards, ensure transparent and fair benchmark submissions, and maintain robust internal controls to prevent and mitigate risks of market abuse. This action is also a reminder that the FCA, in collaboration with international regulators like the US Commodity Futures Trading Commission and the Department of Justice, remains vigilant and committed to upholding integrity in financial markets.
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