Barclays’ Unlawful Conduct at the Direction of Senior Management
The CFTC Order also finds that Barclays, acting at the direction of senior management, engaged in other serious unlawful conduct concerning LIBOR. In late 2007, Barclays was the subject of negative press reports raising questions such as, “So what the hell is happening at Barclays and its Barclays Capital securities unit that is prompting its peers to charge it premium interest in the money market?” Such negative media speculation caused significant concern within Barclays and was discussed among high levels of management within Barclays Bank. As a result, certain senior managers within Barclays instructed the U.S. Dollar LIBOR submitters and their supervisor to lower Barclays’ LIBOR submissions to be closer to the rates submitted by other banks and not so high as to attract media attention.
According to the Order, senior managers even coined the phrase “head above the parapet” to describe high LIBOR submissions relative to other banks. Barclays’ LIBOR submitters were told not to submit at levels where Barclays was “sticking its head above the parapet.” The directive was intended to fend off negative public perceptions about Barclays’ financial condition arising from its high LIBOR submissions relative to the submissions of other panel banks, which Barclays believed were too low given the market conditions.
Despite concerns being raised by the submitters that Barclays and other banks were, for example, “being dishonest by definition” and that they were submitting “patently false” rates, the submitters followed the directive and submitted artificially lower rates. The senior management directive for low U.S. Dollar LIBOR submissions occurred on a regular basis during the global financial crisis from August 2007 through early 2009, and, at limited times, for Yen and Sterling LIBOR during the same period. As the U.S. Dollar senior submitter said in October 2008 to his supervisor at the time, “following on from my conversation with you I will reluctantly, gradually and artificially get my libors in line with the rest of the contributors as requested. I disagree with this approach as you are well aware. I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices.”
Barclays’ Obligations to Ensure Integrity and Reliability of Benchmark Interest Rates
In addition to the $200 million penalty, the CFTC Order requires Barclays to implement measures to ensure that its submissions are transaction-focused, based upon a rigorous and honest assessment of information and not influenced by conflicts of interest. See pages 31-44 of the CFTC’s Order. Among other things, the Order requires Barclays to:
- Make its submissions based on certain specified factors, with Barclays’ transactions being given the greatest weight, subject to certain specified adjustments and considerations;
- Implement firewalls to prevent improper communications including between traders and submitters;
- Prepare and retain certain documents concerning submissions, and retain relevant communications;
- Implement auditing, monitoring and training measures concerning its submissions and related processes;
- Make regular reports to the CFTC concerning compliance with the terms of the Order;
- Use best efforts to encourage the development of rigorous standards for benchmark interest rates; and
- Continue to cooperate with the CFTC.