02/22/2013 12:08 PM

Turning Up the Heat

Banks Could Face Massive Fines over LIBOR Scandal

The European Commission plans to turn up the heat on banks allegedly involved in rigging the benchmark LIBOR lending rate. Not only has the body widened the scope of the investigations to include the Swiss franc, it has also threatened heavy fines on uncooperative banks.

Global banks will soon face even more intense scrutiny and the threat of heavy fines over their alleged involvement in the LIBOR rate rigging scandal . The European Commission is now widening the reach of its 18-month antitrust investigations to include Swiss franc-denominated swaps, the Financial Times reported late on Thursday. Until now, the probes by the competition authority have included yen and euro interbank lending rates.

Banking authorities are investigating dozens of banks from around the world for colluding to fix LIBOR (London Interbank Offered Rate), a key interbank lending rate used to price trillions of dollars of financial instruments.

Because banks face a penalty of up to 10 percent of their global turnover for each case, those found to be involved with all three cartels would potentially have to pay fines equal to 30 percent of total revenues, the FT reported.

In a speech in Paris scheduled for Friday, European Union's competition commissioner Joaquín Almunia is expected to turn up the heat on banks that have been uncooperative with antitrust regulators, the paper said. He is expected to deliver a stern warning to banks that are unwilling to discuss allegations with investigators.

Unlike the United States and the United Kingdom, which have been reaching settlements with individual banks over their involvement in LIBOR fixing, Europe is going after cartels as a whole and dealing with all participants together.

US and UK regulators have already fined three banks including Barclays and UBS. RBS settled with US and UK authorities this month, paying a $612 million fine and admitting to manipulating yen, US dollar and Swiss franc LIBOR rates. German regulators have also been looking into Deutsche Bank's involvement in the scandal. The EU's approach of going after cartels, by contrast, could take years.

The FT reports that Europe may consider settling with banks, but not while some refuse to cooperate with investigators.

"We suspect the existence of cartels between certain actors in the market for derivative products -- banks, but also brokers," said Almunia in the wake of the RBS settlement agreement. "These possible anti-competitive agreements consisting of manipulating rates could have allowed participants to make unfair additional profits on their market transactions.

rr -- with wire reports


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