Barclays guilty of market manipulation

Barclays Bank is to pay a 290 million pound fine following an investigation by UK and US regulators into manipulation of inter-bank lending rates.

The bank's top executives, including Chief Executive Bob Diamond, have agreed to waive their bonuses this year as a result.

City watchdog, the Financial Services Authority (FSA), said Barclays' regulation breaches were "serious, widespread and extended over a number of years".

It accused the bank of having inadequate systems and controls in place until June 2010 and of failing to review its systems and controls at a number of appropriate points.

The FSA's portion of the fine, £59.5m, is the biggest fine the FSA has ever handed down.

Had the bank not co-operated with it, the fine would have been £85m, the regulator said.

The remainder of the penalty is owed to the U.S. Commodity Futures Trading Commission and Department of Justice.

Barclays staff were found to have manipulated submissions for the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor) to benefit the bank's interest rate derivatives traders.

The FSA also said Barclays had reduced its Libor submissions during the financial crisis as a result of senior management's concerns over negative media comment.

Libor and the Euribor are benchmark reference rates that indicate the interest rate that banks charge when lending to each other.

The FSA's investigation details the following exchange over email when 'Trader C' requested low one month and three month US dollar LIBOR submissions at 10:52 am on 7 April 2006, shortly before the submissions were due to be made:

"If it's not too late low 1m and 3m would be nice, but please feel free to say "no"... Coffees will be coming your way either way, just to say thank you for your help in the past few weeks".

A Submitter responded "Done...for you big boy".

Tracey McDermott, acting director of enforcement and financial crime, said the integrity of rates such as Libor and Euribor was of fundamental importance to both UK and international financial markets.

"Firms making submissions must not use those submissions as tools to promote their own interests," she said.

"Making submissions to try to benefit trading positions is wholly unacceptable; this was possible because Barclays failed to ensure it had proper controls in place.

"Barclays' behaviour threatened the integrity of the rates with the risk of serious harm to other market participants," she said.

Barclays Chief Executive, Bob Diamond, said he was sorry that "some people acted in a manner not consistent with our culture and values".

"To reflect our collective responsibility as leaders, Chris Lucas, Jerry del Missier, Rich Ricci and I have voluntarily agreed with the board to forgo any consideration for an annual bonus this year," he said.

Price manipulation is a severely damaging issue and confidence of clients can be lost quickly when price transparency is brought into question, according to Joshua Raymond, Chief Market Strategist at City Index.

"This is an embarrassment for Barclays and ultimately could lead to the banks clients asking questions about whether they themselves have been mistreated also and start shopping around for alternatives," he said.