Britain To Scrap Libor Rate Benchmark From End Of 2021

Andrew Bailey

LONDON (Reuters) - A substitute for the widely-used Libor interest rate benchmark must be in place for banks to use by the end of 2021, the head of Britain's financial markets regulator said.

Libor, a daily rate in a range of currencies, is based on submissions from banks of interest rates they believe they would be charged by others for borrowing money. Banks have been fined billions of dollars for trying to manipulate the benchmark, forcing a rethink of its future.

The benchmark is used to price financial contracts worth $350 trillion, ranging from home loans to credit cards. Bank of England Governor Mark Carney said this month that reference rates should be based on market transactions not judgments.

Andrew Bailey, chief executive of the Financial Conduct Authority, told an event in London on Thursday that work must "begin in earnest" on shifting to an alternative index, saying the end of 2021 would offer time to ensure a smooth transition.

"By having a date by which transition will need to be complete, however, we give market participants a schedule to plan to, and make it easier for them to engage as many counterparties and Libor users as is practicably possible."

Libor must be replaced because there are not enough transactions underpinning the rates, Bailey said, adding that for one Libor variant only 15 trades were executed in 2016.

A Libor based on "expert judgment" of banks is fragile, and there is little prospect of the markets becoming substantially more active in the near future, Bailey said.

"In our view it is not only potentially unsustainable, but also undesirable, for market participants to rely indefinitely on reference rates that do not have active underlying markets to support them," Bailey said.

Banks have voluntarily agreed to contribute rates to Libor until 2021, but if this phase-out deadline was on course to be missed, there would be a "push" from the authorities, Bailey said, without elaborating.

Sonia Beckons

At least six bankers on both sides of the Atlantic have been sent to prison for manipulating Libor, although some in the United States are still awaiting sentencing.

Libor had been compiled by the now defunct British Bankers' Association, but following the rigging scandal, this was transferred to ICE Benchmark Administration (IBA), part of the Intercontinental Exchange (ICE.N).

IBA said changes to Libor have minimized subjective judgments. "Having consulted with regulators and over 1,000 market participants, we believe that the evolving Libor has a long-term sustainable future," it said.

The BoE has already been refining its overnight sterling funding rate SONIA, which is based on actual transactions, as a sterling Libor substitute. Earlier this year a BoE industry working group backed SONIA, which the central bank administers itself, as the substitute for Libor.

There could also be a second substitute benchmark to measure bank credit risk and funding markets that is based on a mix of SONIA and a proxy bank credit risk measure, Bailey said.

Setting a date would focus minds just as the end 2017 deadline to phase out Switzerland's TOIS reference rate triggered serious work on moving to the SARON rate, he said.

The Swiss National Bank said on Thursday it would in due course select an alternative to the Swiss franc Libor as a tool for guiding monetary policy. "Libor will not be scrapped until the end of 2021," it said.

Banks and IBA could continue to produce Libor after 2021, if they wanted to, Bailey said. Existing financial contracts that reference Libor and go beyond 2021 could be amended.

The U.S. Federal Reserve is developing a home-grown benchmark based on the repurchase agreement or repo market as an alternative to dollar Libor, which is used in some $150 trillion of private and exchange-traded derivatives.

The European Central Bank said in May it could replace Euribor, a euro-denominated counterpart to Libor, with a reference rate of its own.


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Reporting by Huw Jones; additional reporting by Kirstin Ridley; editing by Alexander Smith and David Clarke

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Story and photo via Reuters.

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Former Trader Tom Hayes Ordered to Pay £878,000 ($1.2 Million) in LIBOR Case

From The New York Times:

...LONDON — A judge on Wednesday ordered Tom Hayes, a former UBS and Citigroup trader, to forfeit more than 878,000 pounds, or about $1.2 million, in bonuses and other compensation because of his conviction last year of manipulating a global benchmark interest rate known as LIBOR.

Mr. Hayes, who is serving an 11-year prison sentence, was the first person to go to trial in Britain and be convicted on criminal charges related to the manipulation of the London Interbank Offered Rate, or LIBOR.

The ensuing scandal has led to billions of dollars in fines and has rocked the reputations of some of the world’s biggest banks, including Barclays, the Royal Bank of Scotland, UBS and Deutsche Bank.

“The court acknowledged the challenges of quantifying the benefit from crime in this case,” Mark Thompson, the head of the Serious Fraud Office’s Proceeds of Crime Division, said in a news release. “The outcome is a substantial confiscation order, which Mr. Hayes will need to satisfy or face a further period of imprisonment.”

Mr. Hayes testified at a five-day confiscation proceeding last week that he lost nearly £1 million through personal trading after he was dismissed from Citigroup.

The trading losses, along with legal fees, wiped out much of his savings, Mr. Hayes said at the time.

The decision means that Mr. Hayes will probably be forced to sell his family’s home in Surrey.  The seven-bedroom home, known as Old Rectory, is worth about £1.7 million.

At a hearing on Wednesday, prosecutors said Mr. Hayes had only about £49,000 in cash, jewelry and other assets that could be sold quickly to satisfy the judgment.

The Serious Fraud Office had accused Mr. Hayes, who worked as a trader in Tokyo, of being a ringleader among more than a dozen traders in what authorities said was a brazen scheme to manipulate LIBOR, which helps determine the borrowing costs for trillions of dollars in loans. He was accused of engaging in misconduct from 2006 to 2010.

Mr. Hayes was convicted of conspiring to manipulate Libor in August. He was originally sentenced to 14 years in prison, but his sentence was reduced to 11 years in prison by an appellate court in December.

This month, an appeals court denied his request to have the Supreme Court, Britain’s highest court, review the case, making it more difficult for him to challenge his conviction.

Mr. Hayes is expected to ask the Criminal Case Review Commission, which examines miscarriages of justice, to examine his case. The independent body can refer criminal cases back to the appellate court for review.

At trial, Mr. Hayes’s lawyers argued that he was open about his conduct and did not believe at the time that he was acting dishonestly.

To set Libor and other rates, banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and at varying maturities.

The evidence against Mr. Hayes included 82 hours of voluntary testimony that prosecutors said he provided to the Serious Fraud Office over five months. The authorities said he admitted to rigging rates and provided testimony against many former friends and colleagues, including his half brother.

Mr. Hayes testified during the trial that he decided to cooperate with British authorities because he feared being extradited to the United States, where he is also facing criminal charges, and wanted to remain close to his wife and child.

After providing the voluntary testimony to British authorities, Mr. Hayes stopped cooperating with prosecutors in 2013 and chose to plead not guilty to the charges in Britain.

Mr. Hayes remains the only person convicted at trial in Britain for manipulating LIBOR.

Prosecutors suffered a setback in January when six former brokers were acquitted of criminal charges that they helped Mr. Hayes manipulate LIBOR.

A third trial in London of others accused of manipulating Libor is expected to begin next month.

The first trial in the United States of people accused of rigging LIBOR ended in the conviction in November of two former London-based traders. The men were sentenced to prison terms this month...

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Six LIBOR Brokers Acquitted of Fraud

Here's a clip from today's Wall Street Journal article:

"...A jury acquitted six former brokers of fraudulently trying to manipulate a widely used benchmark interest rate, dealing a major blow to a yearslong international investigation.

The jury on Wednesday reached unanimous verdicts to acquit five of the brokers—former ICAP PLC brokers Colin Goodman and Danny Wilkinson, former R.P. Martin brokers Terry Farr and James Gilmour, and former Tullett Prebon broker Noel Cryan—on all counts. The sixth broker, ICAP’s Darrell Read, was acquitted on one count of conspiring to defraud, but the jury is still deliberating on another count against him.

All six men were accused of conspiring with former UBS Group and Citigroup Inc. trader Tom Hayes of trying to rig the London interbank offered rate, or LIBOR. Mr. Hayes was convicted and sentenced to 14 years in prison last August, although the sentence was subsequently reduced to 11 years.

The acquittals set off a scene of jubilation and tears in the courtroom, as the six brokers exchanged hugs and fist bumps and shouts of excitement with themselves, family members and lawyers..."

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Former Rabobank Trader Paul Thompson, Accused of LIBOR Rigging, Arrested Down Under

Here's a clip from today's Wall Street Journal article:

"...A former Rabobank trader wanted by U.S. prosecutors for his alleged role in manipulating a key benchmark interest rate has been arrested, Australian authorities said Saturday.

Paul Thompson, an Australian citizen and former derivatives trader for Dutch bank Rabobank Groep NV in Singapore, was detained Thursday in the Western Australian capital of Perth following an extradition request by the U.S., a spokesperson from the Australian Attorney-General’s Department said.

Mr. Thompson is one of seven former Rabobank employees charged in connection with the world-wide LIBOR manipulation scandal that has ensnared at least 18 financial institutions and 35 individuals. The interest rate underpins bank lending products worth trillions of dollars—from mortgages to student loans.

'Mr. Thompson is wanted to face prosecution in the United States for wire and bank fraud offenses,'  the spokesperson said.

In a statement, Mr. Thompson’s wife, Robyn, said: 'There is no reason for Paul to be charged by the U.S. For this reason we were hoping that Paul could defend himself against any allegations in either Australia or the U.K., so he could have access to the necessary evidence, financial and emotional support to do this properly.'  Ms. Thompson also said his family would be seeking bail for the trader. A spokeswoman at Rabobank’s base in Utrecht declined to comment on the arrest and court case, saying Rabobank wasn’t a party in the current U.S. trial.

Two other former Rabobank traders, Anthony Allen and Anthony Conti, are currently facing court in New York on charges of conspiring to rig LIBOR for their own benefit between May 2006 and early 2011. If convicted, they could spend years in prison. Both men deny the allegations. Meanwhile, three former Rabobank colleagues have pleaded guilty to criminal charges of manipulating LIBOR. Another former Rabobank yen LIBOR derivatives trader, Tetsuya Motomura, hasn’t yet entered a plea. He was charged, alongside Mr. Thompson, with conspiracy to commit wire and bank fraud, according to the Justice Department.

The Rabobank trial parallels similar court cases under way in the U.K. So far, 13 individuals have been charged in the U.S. in connection with the LIBOR investigation. Some of the world’s largest banks have admitted to manipulating the rate, including Rabobank.

In 2013, when Rabobank agreed to pay $1.07 billion in a settlement with U.S., British, Dutch and Japanese authorities, a member of its executive board said: “It’s shameful what has happened.”

This summer, a British judge sentenced Tom Hayes, a former UBS and Citigroup trader, to 14 years in prison for manipulating LIBOR. He became to first individual to be criminally convicted in the world-wide probe..."

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