It's a 'sad day' for RBS as bank accepts LIBOR-related penalties

Royal Bank of Scotland, the 81 per cent state-owned lender, has agreed to pay LIBOR-related penalties after a report found 'serious failures in the controls and risk management systems RBS had in place'.

Royal Bank of Scotland, the 81 per cent state-owned lender, has agreed to pay LIBOR-related penalties after a report found 'serious failures in the controls and risk management systems RBS had in place'.

The group agreed to pay penalties of £87.5m, $325m, and $150m to the Financial Services Authority (FSA), Commodity Futures Trading Commission (CFTC) and Department of Justice (DOJ), respectively.

The company said it has entered into a deferred prosecution agreement in relation to one count of wire fraud relating to Swiss Franc LIBOR and one count for an antitrust violation relating to Yen LIBOR. RBS Securities Japan has also agreed to enter a plea of guilty to one count of wire fraud relating to Yen LIBOR.

The investigations uncovered wrongdoing on the part of 21 employees, predominantly in relation to the setting of the bank's Yen and Swiss Franc LIBOR submissions.

All of the regulators concluded that RBS, as a firm, had not engaged in any 'deliberate misconduct'.

Philip Hampton, RBS Chairman, said: "The RBS board acknowledges that there were serious shortcomings in our systems and controls and also in the integrity of a small group of our employees. This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past.

"We have to fix the culture in the banking industry. The most important part of that is focusing our efforts on the needs of our customers and acting with integrity. And it also involves facing up to the bank's past failings, no matter how uncomfortable that is. That is why those responsible have left the organisation or been subject to disciplinary action.

"The board has also used all means possible to ensure the gravity of this issue is reflected in the remuneration received by employees. No one should be left in any doubt about how seriously RBS takes these failings.

"Although this wrongdoing went undetected for longer than we would have wished, in this and across all risk areas we are working hard to root out bad practices and put them right for the future. This process has no short cuts, but does have our full attention."

Main finding of investigationsThe investigations found that the bank's Yen (JPY) and Swiss Franc (CHF) derivative traders sought to influence the Bank's JPY and CHF LIBOR setters in the period October 2006 to November 2010, and that the company's JPY, CHF and US dollar money market traders did on some occasions take into consideration their own money markets books as a factor in their LIBOR submissions.

In addition, two RBS traders based in London colluded with other banks and brokers in making and receiving requests for higher and lower JPY and CHF LIBOR.

The group stressed that there are no findings that anyone beyond individual traders and, in some instances, their immediate supervisors, was aware of, or instructed, any deliberate manipulation of submissions, nor is there any finding that RBS suppressed LIBOR submissions at the direction of senior management.

Management takes actionThe company stressed that since it became aware in 2011 of improper conduct in connection with rate setting, its management has taken action to strengthen significantly the systems and controls governing its LIBOR submissions.

The company revealed that all 21 wrongdoers referred to in the regulatory findings have left the organisation or been subject to disciplinary action.

Individuals found culpable left the bank with no 2012 bonus and the company fully clawed-back any outstanding past bonus awards. Supervisors with accountability for the business but no knowledge or involvement in the wrongdoing have received zero bonuses for 2012 and a range of claw-back from prior years depending on specific findings.

John Hourican, Chief Executive of the Markets and International Banking division, to leave the bankThe group described this action as "a difficult decision", but said that while Hourican had no involvement in or knowledge of the misconduct, both he and the board felt it was "right that he leave the organisation in recognition of the management issues identified in relation to this settlement and the impact on the group's reputation".

He will leave the business after handing over his responsibilities. He will receive 12 months' notice and his other contractual entitlements, however, he will forfeit all his unvested bonus and Long Term Incentive Plan awards that are subject to claw-back.

CEO condemns wrongdoingStephen Hester, RBS Group Chief Executive, said: "I want to speak very clearly and on behalf of the 137,000 employees of RBS. We condemn the behaviour of the individuals who sought to influence some LIBOR currency settings at our bank from 2006-10. There is no place at RBS for such behaviour.

"We are also determined to correct the broad range of control and risk management failures that originated in RBS during the financial boom years. LIBOR manipulation is one example. This is a painstaking task undertaken carefully and diligently over five years. We know that we cannot detect and solve every problem as fast as we would like. But our commitment is absolute. We are dedicated to creating a safe and secure RBS that serves customers well and that, in the right way, creates value for those who rely on us.

"LIBOR manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom. We will use the lessons learned from this episode as further motivation to reject and change the vestiges of that culture. RBS is making substantial progress overall. Today's announcement is not the first and will not be the last reminder of the scale of the changes that need to be made. But our determination to clean up RBS for all is undiminished."

Recommended

Broker safety – your questions answered
Investment strategy

Broker safety – your questions answered

Cris Sholto Heaton answers more of your questions about the safety of stockbroker accounts
25 Mar 2020
How demographics affects stock valuations
Investment strategy

How demographics affects stock valuations

New research suggests that stock and bond valuations are driven by the age of the population – at least in the US.
24 Feb 2020
Do you own shares in Sirius Minerals? Here’s what you need to do now
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020
Why investors should be “cautiously bullish” for 2020
Stockmarkets

Why investors should be “cautiously bullish” for 2020

Analysts have been out in force making rosy predictions for stockmarkets in 2020, but while there is certainly a case for optimism, investors should r…
17 Jan 2020

Most Popular

Why commodities could be the best investment for 2021
Commodities

Why commodities could be the best investment for 2021

There’s plenty for investors to worry about right now. But things will inevitably recover. And the sector most likely to do best when they do, says Jo…
22 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020
Buying bitcoin could be the best way to play the remote working boom
Bitcoin

Buying bitcoin could be the best way to play the remote working boom

The coronavirus pandemic has accelerated the move to home working, flexible employment practices and the rise of the “digital nomad”. One of the best …
21 Oct 2020