Lloyds Banking Group Faces over $200 Million Fine in LIBOR Manipulation Charges

The British and American regulators have settled against Lloyds Banking Group plc and affiliates for false trade reporting and the

cftcThe U.S. Commodity Futures Trading Commission (CFTC) has issued an order against Lloyds Banking Group plc as well as its affiliate Lloyds Bank plc, for charges of false trade reporting and the attempted manipulation of the London Interbank Offered Rate (LIBOR), according to a CFTC statement.

Q1 of 2014 has been an eventful period for Lloyds, having been in the spotlight of a global investigation of LIBOR manipulation that culminated in several personnel moves and resignations. With a multitude of record-setting fines, several major banks worldwide were either under investigation or outwardly accused of manipulation – a fitting prelude ahead of the now ongoing probe into Forex rates fixing.

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The most recent CFTC charges isolate the manipulation of GBP, USD and JPY LIBOR rates that were committed by employees of Lloyds TSB Bank plc (Lloyds TSB) and HBOS plc, another subsidiary assimilated into the Lloyds Group back in 2009. The CFTC mandate requires Lloyds Banking Group and Lloyds Bank to pay a collective $105 million civil monetary penalty, further calling for the immediate cessation of violations of the Commodity Exchange Act.

According to Aitan Goelman, CFTC Director of Enforcement, in a recent statement on the charges, “By today’s action, Lloyds is being held accountable for serious misconduct. The CFTC remains committed to taking all actions necessary to ensure the integrity of the markets we oversee.” This misconduct specifically centers on the manipulation by Lloyds of its cash and derivatives trading positions. In essence, the CFTC found that HBOS successfully masked and tinkered with its GBP and USD LIBOR submissions, which would have surely derailed an acquisition with Lloyds Banking Group back in 2009. An example of misconduct via written communication between HBOS and Lloyds can be read here.

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In addition to a CFTC edict calling for $105 million in civil monetary penalties, the UK’s Financial Conduct Authority (FCA) has also fined Lloyds Bank and its Bank of Scotland subsidiary (BoS), £105 million for misconduct and LIBOR benchmark manipulation – its third highest fine ever issued.

The fine imposed by the FCA is the seventh such penalty for LIBOR-related grievances by the UK regulator. In addition to misconduct charges, the FCA also accused Lloyds of Repo Rate benchmark manipulation – between April 2008 and September 2009, Lloyds and its BoS subsidiary reduced its required taxed fees payable to the Bank of England (BoE). The Repo Rate is a discounted benchmark rate that was published on a daily basis up until 2012 – these important rates were dictated by Repo Rate panel banks, which collectively submitted a variety of information and figures that helped drive the repo market.

According to Tracey McDermott, the FCA’s Director of Enforcement and Financial Crime, in a statement on the allegations, “The firms were a significant beneficiary of financial assistance from the Bank of England through the SLS. Colluding to benefit the firms at the expense, ultimately, of the UK taxpayer was unacceptable. This falls well short of the standards the FCA and the market is entitled to expect from regulated firms.”

“The abuse of the SLS is a novel feature of this case but the underlying conduct and the underlying failings – to identify, mitigate and monitor for obvious risks – are not new. If trust in financial services is to be restored then market participants need to ensure they are learning the lessons from, and avoiding the mistakes of, their peers. Our enforcement actions are an important source of information to help them do this,” McDermott added.

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