The biggest concern over the last years has been the regulatory and the litigation issues to ensure that markets work well and enhance market integrity. Today’s action applies the high standards we expect of firms in relation to LIBOR to benchmarks in these vitally important markets, ensuring that market participants can be confident in the fairness and integrity of the benchmarks they use.
This week legal costs cut Deutsche Bank profit for first quarter. Among the bank’s outstanding legal threats to earnings are probes into the manipulation of benchmark foreign-exchange rates, as well as investigations into mortgage- and asset-backed securities dealings and alleged U.S. sanctions violations.
“This case stands out for the seriousness and duration of the breaches by Deutsche Bank — something reflected in the size of today’s fine. One division at Deutsche Bank had a culture of generating profits without proper regard to the integrity of the market. This wasn’t limited to a few individuals but, on certain desks, it appeared deeply ingrained,” Georgina Philippou, the enforcement director of the U.K. regulator, said in a statement.
The regulators allege that between 2005 and 2011, traders at Deutsche Bank based in London, New York , Tokyo and other locations conspired to rig Libor and two other benchmarks — the Euro Interbank Offered Rate, or Euribor, and the Euroyen Tokyo Interbank Offered Rate, or Tibor.
Libor, Euribor and Tibor, which underpin trillions of dollars in financial products around the globe, are set based on submissions by panels of major banks. The sprawling investigation has focused on whether the rates were intentionally skewed to benefit the banks’ trading positions or to make the firms appear healthier than they actually were.
During that period, Deutsche Bank traders repeatedly requested that submitters enter rate quotes that benefited the traders’ positions rather than the rates that complied with the benchmarks’ requirements.
With increased pressure from United States and British regulators and law enforcement authorities, to settle wire fraud claims,the bank agreed penalty of $2.5 billion for manipulating interest-rate benchmarks, including the London interbank offered rate,and other key benchmarks.
People at every level of an organization affect internal control. Internal control is, to some degree, everyone’s responsibility. The primary categories of risk are errors, omissions, delay and fraud. In order to achieve goals ensuring that market participants can be confident and other objectives, management needs to effectively balance risks and controls so that they decrease risk to a level where management can accept the exposure to that risk.
Much like previous Libor settlements, no individuals at Deutsche Bank entered a guilty plea or were named in court documents; however, the New York regulator forced Deutsche Bank to terminate seven employees, one London-based managing director, four London-based directors, one London-based vice president and one Frankfurt-based vice president, and install an independent monitor.