UBS AG and at least three other banks, including Royal Bank of Scotland (RBS) are presently negotiating with EU Antitrust officials to settle a third financial probe into the manipulation of benchmark rates, this time related to the Swiss Franc Libor rate, according to a Bloomberg statement.
The investigation into the Swiss Franc Libor rates represents the third such probe into the manipulation of rates by traders, with several banks already embattled with European Union (EU) and US regulators over the issue of fraudulent trading – Credit Suisse Group AG is also tied to these allegations. Indeed, this lingering saga has already roiled the foreign exchange industry, culminating in record fines and a number of firings by traders involved.
Record Fines Already Dolled Out, More to Come?
The aggregate sum of all fines for violations of rigging a multitude of benchmark rates such as those prevalent in the London interbank offered rate (Libor) totaled $6.0 billion back in December, including the largest bank by Forex trading volume, Deutsche Bank AG ($2.3 billion in fines). The gravity of these allegations is deeply serious and threatens widespread regulatory change to a multi-trillion dollar annual industry. Collectively, the trifecta of investigations by regulators centers on the respective manipulation of forex markets, benchmark rates and credit derivatives trading; and there is plenty of blame to go around.
According to Richard Reid, a Research Fellow for Finance and Regulation at Scotland’s University of Dundee, “I think it’s increasingly clear now that all sides in these investigations are keen to reach some kind of a deal. The banks see it in their interests to try to reduce the level of regulatory uncertainty by drawing a line under such matters and concentrate on rebuilding their franchises.”
Swiss Franc Libor Investigation Eyes Summer Resolution
The latest chapter of the scandal moves the gaze toward Swiss Franc Libor rates, unfortunately not localized to one region, but rather on a global level. Weighing in on the matter was the Swiss Competition Commission (SCC), which together with an EU-launched investigation, is optimistic of a resolution by July. However, each successive week seems to add more intrigue to the probe, and nobody truly knows how deep the manipulation goes.
Among the banks under investigation, Credit Suisse, RBS, and JPMorgan each face stiff sanction fines, pending the outcome of the probe. Last year, RBS reached a settlement with the U.K. Financial Services Authority (FSA) and the U.S. Commodity Futures Trading Commission (CFTC) dealing with the coordinated manipulation between various traders in the derivatives realm of the Swiss Franc Libor. As recently as January 7, 2014 however, RBS also faced additional fines for its involvement in the manipulations of Japanese rates.
