Interbank Rates and Compliance

Various U.K. and European Union regulators recently stated that they were vigorously investigating allegations of price fixing of two critical interbank interest rates.  Some European politicians were calling for criminal prosecutions because of the rate-rigging.

The rate at issue is set by Barclays and other lenders and contributes to the price banks pay for trading $360 trillion (yes, trillion) in securities.  Even the most minor or subtle manipulation or change in this rate can have a financial impact well into the billions of dollars.  In the wake of this scandal, Barclays has already paid $451.4 million in regulatory fines with more fines and costly litigation to come.  Barclays is a defendant in some of the 24 Libor (the interbank rate) lawsuits before a federal judge in New York.

Bank of America, Citigroup, Royal Bank Group and UBS AG are other lenders and institutions who are also under investigation for setting the interbank rates.  The lawsuits could be quite costly for the banks since American attorneys can ask for punitive damages for the banks conduct, while British courts and attorneys are limited to compensatory awards.

The lesson, as always, is to ensure that any investment or securities practice needs to recommend to clients to have a strong internal compliance program to ensure that any issues are addressed quickly and effectively.  Unfortunately for Barclays (and others), because of this scandal, they will be fighting lawsuits related to this issue for many years.

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