Principle 2

FSA Censures Kaupthing for Liquidity Monitoring Failures

Posted on

On June 26, the FSA reported that it had issued a Final Notice (dated 18 June 2012) against Kaupthing Singer and Friedlander Limited (KSFL), the UK based subsidiary of the Icelandic banking group Kaupthing Bank Hf (KBHf). Final Notice.

The FSA found that KSFL breached Principle 2 of the FSA’s Principles because it failed to consider promptly and properly whether liquidity stresses in KBHf would have a detrimental effect on its own liquidity position. KSFL did not give proper consideration to, or properly monitor, a special financing arrangement with its parent company in Iceland. In addition, when it started to have concerns about this liquidity arrangement, it failed to discuss these concerns with the FSA in a timely manner.

The FSA has published this notice to ensure that other regulated firms understand the importance of complying with the FSA’s liquidity guidelines and that where compliance is dependent on liquidity arrangements with a parent company, the ability to exercise these arrangements is rigorously tested rather than assumed.

FSA Fines Barclays £59.5 Million for Manipulation of LIBOR

Posted on

On 27 June 2012, the FSA published the final notice issued to Barclays Bank plc, detailing a £59.5 million fine for misconduct relating to its submission of rates that formed part of the London Interbank Offered Rate (“LIBOR”) and the Euro Interbank Offered Rate (“EURIBOR”). This is the largest ever fine that the FSA has imposed. Final Notice.

In particular, Barclays breached the following Principles:

  • Principle 5 (market conduct) – Barclays was found to have breach Principle 5 by making US dollar LIBOR and EURIBOR submissions that took into account requests made by interest rate derivatives traders.
  • Principle 3 (management and control) – Barclays did not have adequate risk management systems or effective controls in place relating to its LIBOR and EURIBOR submission process.
  • Principle 2 (skill, care and diligence) – Barclays failed to conduct its business with due skill, care and diligence when considering issues raised internally relating to its LIBOR submissions.

In addition to the fine by the FSA, the U.S. Commodity Futures Trading Commission fined Barclays $200 million, and Barclays agreed to pay a penalty of $160 million as part of an agreement with the U.S. Department of Justice.

The Barclays settlement is the first settlement announced in connection with the LIBOR probe, with regulators investigating more than 20 banks.