We have acted for clients in major High Court litigation against numerous banks that have been subject to regulatory action for LIBOR and other benchmark rate manipulation. Our City of London lawyers are at the forefront of LIBOR rate manipulation claims in the UK, and have a successful track record of litigating against and securing large financial settlements with all the major banks.
We specialise in successfully bringing claims against banks where bankers have manipulated LIBOR rates by submitting false estimated lending rates.
LIBOR is a key interest rate which is set daily by a group of major London banks in relation to a variety of periods and currencies. While this notionally represents the interest rate applying when banks lend and borrow money between themselves (hence “Interbank”), we now know that at least some of the banks were making fraudulent submissions so as improve their trading positions. Manipulation is such a major problem, that LIBOR publication will be discontinued by the end of 2021 and Banks will soon be using the new Sonia (Sterling Overnight Interbank Average Rate) rate as a benchmark for loans and other contracts.
What is LIBOR (London Interbank Offered Rate)?
LIBOR is a benchmark interest rate organised by the British Bankers’ Association (“the BBA”) that fixes rates for various currencies, including pound sterling, the US dollar, the euro, the Swiss franc, and the Japanese yen.
The process of setting LIBOR involved a panel of banks (including RBS), each of whom would submit on a daily basis the interest rates that they would expect to pay for borrowing from other banks. Those submissions were then used to derive the LIBOR rate for a given currency and tenor (such as 3-month GBP).
In recent years, several banks have been fined by regulators for their participation in LIBOR rigging, which involved making false submissions at the request of their derivatives traders in order to benefit their trading positions.
What is LIBOR manipulation?
LIBOR is used to determine the payments to be made under a wide variety of derivatives contracts, and the size of the trades is such that the bank can make a substantial profit by manipulating LIBOR by even one basis point (i.e. 0.01%). A profit for the bank necessarily implies a loss for whoever is on the other side of the deal.
Any individual or SME that has been mis-sold a Forex hedging products, a LIBOR-linked derivative or any hedge linked to a benchmark can explore a manipulation claim with our expert litigation lawyers. These customers of RBS, Barclays, HSBC and Lloyds Plc may potentially have grounds to rescind the derivative contract if the implied representations made by the banks are considered false due to regulatory findings of benchmark rigging. RBS, Barclays, HSBC and Lloyds Plc have all either undermined the integrity of LIBOR or have been fined for Forex failings.
LIBOR manipulation fines against major banks
In June 2012, Barclays was fined £59.5 million by the Financial Services Authority (which is now known as the Financial Conduct Authority) for LIBOR fraud, and UBS was fined £160 million by the FSA in December 2012 for its part in LIBOR manipulation.
In February 2013, RBS was fined £87.5 million by the FCA for LIBOR rigging, which had involved RBS taking requests from its derivatives traders in relation to JPY (Japanese yen) and CHF (Swiss franc) LIBOR and then making false submissions. RBS was also fined £207 million by the US Commodity Futures Trading Commission and £150 million by the US Department of Justice for the same instances of LIBOR rigging.
In July 2014, Lloyds Bank and Bank of Scotland were together fined £105 million by the FCA for LIBOR manipulation and for attempting to manipulate their fees payable to the Bank of England under the Special Liquidity Scheme (which was a taxpayer-backed government scheme to support British banks during the recent financial crisis).
In April 2015, Deutsche Bank was fined a record £227 million by the FCA for LIBOR manipulation, which primarily involved Deutsche Bank managers, traders and submitters based in London.
Limitation: Extra Time for Swaps Mis-selling Claims?
Many SMEs have good winnable cases that they ought to have brought against the major banks but failed to do so in time. SMEs are often slow to take legal advice on the basis they are scared to act against their lender and in the belief that the regulator will force the banks to provide redress. These often misguided fears and hopes have resulted in many SMEs becoming time barred from their usual contractual legal rights as the IRHPs were, now, mostly sold over six years ago.
Often directors feel they should be given additional time to pursue legal claims for mis-sold derivatives because the bank(s) have made promises to redress the business, for example via the bank complaints process or via the FCA IRHP Review or because they simply couldn’t afford to take specialist legal advice. Such sentiment is largely ill-founded and will be ignored by the court which will enforce the Limitation Act 1980 to ensure that there is legal certainty.
Limitation hurdles are not necessarily insurmountable, as demonstrated in the case of Kays Hotel Limited v. Barclays Bank PLC, where Barclays failed to strike out the Hotel’s claim as the court determined that s14A of the Limitation Act applied, thereby giving the Hotel an extra three year period from the date of knowledge of the mis-selling.
However the decision of the court in PAG v RBS goes further and highlights an arguable route around the usual limitation hurdles that face most swaps mis-selling claims where the derivatives product in question was sold over six years ago.
Any similarly affected businesses that have been sold derivatives such as swaps or collars should obtain specialist legal advice in relation to the possible impact of LIBOR rigging on their IRHP mis-selling claims as soon as possible.
How was LIBOR being manipulated by currency traders at banks?
As the PAG case demonstrated, RBS has been found guilty of manipulating LIBOR. The Financial Services Authority (FSA) (now known as the FCA) investigated widespread LIBOR manipulation and in particular found that RBS had committed substantial breaches of Principles 3 and 5 of the Principles for Businesses. These breaches resulted in a fine of £87.5 million for RBS in February 2013.
In addition to the FSA fine, RBS had also been fined $325 million by the US Commodity Futures Trading Commission and $150 million by the US Department of Justice. The US Attorney General has described RBS’s conduct as “a stunning abuse of trust”. The CFTC notes that the unlawful conduct went back to at least 2006 and continued even after RBS was aware of the Commission’s investigation. The FSA describe the abuse as “widespread” and notes that in response to a specific query in March 2011, RBS assured the FSA that it had proper systems in place to prevent LIBOR manipulation, when this was false. All in all, the outcome of this international investigation into RBS’s affairs is a damning indictment of its culture and management practices.
The CFTC press release contains some particularly interesting details, including extracts from conversations between traders such as:
Yen Trader 4: where’s young [Yen Trader 1] thinking of setting it?
Yen Trader 1: where would you like it[,] libor that is[,] same as yesterday is call
Yen Trader 4: haha, glad you clarified ! mixed feelings but mostly I’d like it all lower so the world starts to make a little more sense.
Senior Yen Trader: the whole HF [hedge fund] world will be kissing you instead of calling me if libor move lower
Yen Trader 1: ok, i will move the curve down[,] 1bp[,] maybe more[,] if I can
CTFC Report on RBS Libor Rigging
LIBOR manipulation claims against RBS, Barclays, HSBC and Lloyds Bank
RBS were fined £217 million by the FCA for FX failings in November 2014. RBS were also fined $290 million by the United States Commodity Futures Trading Commission (“CFTC”) in relation to investigations into failings in the bank’s Foreign Exchange business within its Corporate & Institutional Banking division. The fines were for “attempted manipulation of, and for aiding and abetting other banks’ attempts to manipulate, global foreign exchange (FX) benchmark rates to benefit the positions of certain traders.” One of the primary benchmarks that the FX traders attempted to manipulate was the World Markets/Reuters Closing Spot Rates (WM/R Rates).
Barclays was fined £60 million by the FSA in June 2012. Barclays admitted to misconduct. The US Department of Justice and the Commodity Futures Trading Commission (CFTC) imposed fines worth £102m and £128m respectively, forcing Barclays to pay a total of around £290m. According to the FSA, Barclays acted inappropriately and breached Principle 5 on numerous occasions between January 2005 and July 2008 by making US dollar LIBOR and EURIBOR submissions which took into account requests made by its interest rate derivatives traders
HSBC was fined £216 million by the FCA in November 2014. HSBC was also fined $275 million by the CFTC, and recently paid a $100 million settlement of currency rigging to the US Departement of Justice. The FCA found that HSBC failed properly to control its London voice trading operations in the G10 spot FX market, with the result that traders in this part of its business were able to behave in a manner that put HSBC’s interests ahead of the interests of its clients, other market participants and the wider UK financial system.
Lloyds Bank of Scotland was fined £105 million by the FCA in July 2014. The bank breached Principle 5 and Principle 3 of the Authority’s Principles for Businesses through manipulating submissions to two benchmark reference rates, the Repo Rate and LIBOR, in order to seek to manipulate those rates. The Repo Rate benchmarked the rates offered by major banks in London for dealing GBP general collateral repo transactions, and was in operation between May 1999 and December 2012 when it was abolished.
The step-by-step strategy to build a successful LIBOR manipulation claim
- A bank made an implied representation that it was not and will not manipulate LIBOR/FOREX/key benchmark when selling a Swap. If a bank says nothing about LIBOR/FOREX/key Benchmarks this counts as sufficient conduct to create an implied representation that they have not participated in benchmark rigging. An implied representation exists if the reasonable customer would naturally assume a key benchmark had not been rigged and if it was he would have been informed at the outset.
- There have been regulatory findings or bank admissions of manipulation of LIBOR, FX or other key Benchmark. There have been regulatory findings against most major panel banks, such as RBS, Barclays, HSBC and Lloyds Plc.
- The proven manipulation of that particular benchmark is used in the derivative sold to the customer.
- Potentially claims could extend beyond manipulation of that particular benchmark if “cross-contamination” between benchmarks can be proved
How can LIBOR manipulation claims be resolved?
If you have been mis-sold an FX derivative, then there are several potential solutions including:
- attempting to negotiate with the bank or broker;
- complaining to the bank or broker;
- complaining to the Financial Ombudsman Service; or
- sending a letter before claim, issuing legal proceedings at Court, and litigating against the bank or broker.
The initial step may be to attempt to negotiate with (or complain to) the bank or broker, although this may not resolve the mis-selling dispute without the threat and/or commencement of legal proceedings. It is also possible to complain about the mis-selling to the Financial Ombudsman Service (“FOS”), via which it may be possible to receive compensation of up to £150,000. Our derivatives mis-selling lawyers have considerable experience of preparing and presenting detailed complaints on behalf of our clients to major banks and the FOS, and we are also able to advise if litigation offers better prospects for redress (which it can often be).
Our specialist derivatives mis-selling lawyers understand that your case is unique and we therefore adopt a tailored approach for your benefit, combining the facts of your case with our experience and understanding of derivatives mis-selling to prepare the strongest possible legal claim for you.
We understand that mis-sold FX derivatives can cause additional problems for your business (such as winding-up petitions, the appointment of LPA receivers or difficulties with HMRC) and we are therefore also able to offer you an integrated service with our experienced Insolvency and Taxation teams for your business rescue needs.
LEXLAW LIBOR Litigation
Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in this area of banking litigation and have and are acting on LIBOR rigging claims against major UK banks. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks.
Call us on 02071830529 or complete our online contact form.