The Financial Stability Board stated, in an email to Reuters on January 24, 2014, that it is “is in the process of defining the work it will do on issues around FX benchmarks.”
The Financial Stability Board was established to “coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies” by bringing together national authorities for financial stability from a group of 20 leading economies (G20).
This statement was made after the U.S. Department of Justice announced conspiracy and fraud charges against three former Rabobank bankers: Paul Robson, Paul Thompson, Tetsuya Motomura, for manipulating the yen London Interbank Offered Rate (LIBOR) rate in an ongoing investigation of the LIBOR rate-fixing scandal. LIBOR is the average estimated interest rate by major London banks that would be charged should they borrow from other banks. Reuters calculates 150 different Libor rates from data submitted by a panel of major banks in the British Bankers’ Association (BBA) on a daily basis for 15 borrowing periods, ranging from overnight to 12 months and spanning 10 different currencies. This interest rate is, along with the Euro Interbank Offered Rate (EURIBOR), the primary benchmark for short-term interest rates in the world and many mortgages, student loans, financial derivatives, and other financial products are tied to LIBOR.
LIBOR rate manipulation has existed as early as 1991, but only came to the attention of the media in 2012 when multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by certain banks in the BBA related to LIBOR rate manipulation. Barclays Bank eventually entered into an agreement with the Department of Justice to pay a $160 million penalty to resolve violations arising from their submissions (it was fined a total of $477 million worldwide). After the discovery, institutions began extensive investigation into the LIBOR rate-fixing scandal. Two other banks that were discovered to have engaged in the scandal were UBS and Royal Bank of Scotland (RBS).
These banks signed deferred-prosecution or non-prosecution agreements to resolve the charges that effectively put the banks on probation for two years and obliged them to cooperate in the benchmark-rigging investigation. So far, they have provided information that are helpful in advancing the probe without overtaxing constrained law enforcement resources. “The cooperation that we have been able to secure as part of our agreements in the LIBOR investigation has been very helpful to us in terms of holding banks’ feet to the fire,” Mythili Raman, the acting head of the Department of Justice’s criminal division, said in an interview on January 23, 2013. The accords have compelled some lenders to conduct internal investigations and voluntarily submit lists of potential witnesses and documents without subpoenas to the Department of Justice.
Barclays is currently involved in a case being scheduled to hear in London’s High Court, where it is being accused of mis-selling products that were based on LIBOR rates by a UK residential care home operator. The court ordered Barclays to hand over thousands more emails and other documents from its former bosses.