Shearman & Sterling LLP | Financial Regulatory Developments Focus | UK Financial Conduct Authority Fines and Bans Former Trader for LIBOR Manipulation
Financial Regulatory Developments Focus
  • UK Financial Conduct Authority Fines and Bans Former Trader for LIBOR Manipulation
    A former trader at a major financial institution has received a £180,000 fine and been banned by the U.K. FCA from performing functions relating to regulated financial activity. This follows on from the FCA’s £226.8 million fine against the institution in 2015 for its breach, in relation to LIBOR, of Principle 5 of the FCA Handbook, namely that “A firm must observe proper standards of market conduct.”

    The employee, who worked as a short-term interest rate derivatives trader, acted as the primary JPY LIBOR submitter for the institution. Between 25 July 2008 and 11 March 2010, the FCA found that the employee acted improperly and was knowingly concerned in the institution’s breach of Principle 5 through:

    1. Making requests to the institution’s CHF LIBOR submitters, in an attempt to influence their LIBOR submissions;
    2. Taking into account trading positions when making his own submissions for JPY LIBOR; and
    3. Improperly agreeing with an external trader at another financial institution to make certain JPY LIBOR submissions at the request of the external trader.

    The employee was originally issued with a Warning Notice in January 2014, but proceedings were stayed pending criminal investigations by the U.K. Serious Fraud Office into certain former employees of the institution. In its Final Notice on 15 February 2018, the FCA applied its policy on the imposition of financial penalties as set out in the FCA’s Decision Procedure and Penalties Manual (“DEPP”), to determine the appropriate financial penalty for the employee.

    In particular, the FCA stated that the need for deterrence justified a very significant fine, as well as the “extremely serious” nature of the breach which “could have caused serious harm to other market participants.” The FCA also took into account the fact that the employee was a highly experienced market professional, and so he deliberately closed his mind to the risk that this behaviour was contrary to proper standards of market conduct, acting recklessly and with a lack of integrity. Due to the employee’s decision to settle prior to a decision notice, he qualified for a 10% (stage 3) discount under the FCA’s executive settlement procedures, without which the FCA would have imposed a fine of £200,000.

    In addition to the imposition of a fine, the FCA determined that the employee was not a fit and proper person to perform any regulated financial activity, owing to his lack of integrity. Accordingly, he has also been prohibited from carrying out any such functions in the future.

    View the FCA Final Notice.
    TOPIC: Enforcement