The focus of recent headlines on the fallout from the LIBOR manipulation scandal has shifted from financial institutions to the individuals charged with the manipulation of the benchmark rate. While investigations into financial institutions continue, with Deutsche Bank becoming the latest to enter a settlement with regulators, the first individual, Tom Hayes, has been found guilty and sentenced to 14 years in prison. In this article, we look at recent developments in LIBOR actions internationally and conclude with a broader look at developments in relation to benchmark rate rigging.

Criminal prosecutions of individuals

In July 2015, a jury in Southwark Crown Court found Tom Hayes to be guilty of 8 counts of conspiracy to defraud, sentencing him to 14 years in prison. Tom Hayes, the former UBS and Citigroup trader, was the first of 13 individuals who have been charged following the Serious Fraud Office’s (“SFO”) investigation into the manipulation to stand trial.

Two further trials, one involving a number of brokers who allegedly conspired with Tom Hayes are due to commence in October 2015, with the second involving traders who allegedly manipulated the US Dollar LIBOR commencing in January 2016. One of the traders pleaded guilty to manipulating the US Dollar LIBOR in October 2014.

There has been commentary in the media regarding the lack of senior figures at financial institutions that have faced criminal charges in respect of the manipulation of LIBOR. During the SFO interviews in 2013, Tom Hayes told the SFO that senior employees at UBS were aware of the manipulation of LIBOR, with the manipulation “openly discussed” during meetings allegedly attended by senior management at UBS.

In March 2015, Lee Stewart, a former trader at Rabobank, pleaded guilty to one count of conspiracy to commit wire fraud and bank fraud before US District Judge Rakoff. In 2014, two other former Rabobank employees Takayuki Yagami and Paul Robson also pleaded guilty to one count of conspiracy to commit wire fraud and bank fraud. The three individuals will face sentencing in 2017. Rabobank has previously paid fines totalling USD 325 million to US regulators in relation to manipulation charges.

As a result of the guilty pleas, the Financial Conduct Authority (“FCA”) has taken steps to ban both Paul Robson and Lee Stewart “ from performing any function in relation to any regulated activity” given that their misconduct highlights their lack of honesty and integrity. It should be noted that the press release relating to Lee Stewart’s ban refers to the 14 warning notices the FCA has issued to date in respect of benchmark rates, “and continues wider investigations into individuals’ conduct in relation to LIBOR misconduct”. We may see the FCA taking further action against individuals in the  future.

Press reports suggest that the US Department of Justice (“DoJ”) is investigating the conduct of a number of former Deutsche Bank traders in respect of the US Dollar LIBOR. Although to date the DoJ has not brought any changes against any individuals.

Litigation against institutions

Numerous lawsuits have been filed in the United States relating to LIBOR manipulation. Recently, the District Court in the Southern District of New York certified a class of purchasers of Barclays ADS. The group of shareholders led by Carpenters Pension Trust Fund of St Louis and St Clair Shores Police & Fire Retirement System allege that Barclays inflated its stock prices by manipulating LIBOR.

The civil litigation landscape in the US can be expected  to continue to develop. Class action proceedings against a number of financial institutions have been consolidated for pre-trial purposes and with threshold legal rulings in a number of lead cases awaited. The co-ordinating judge

(Judge Buchwald) dismissed the plaintiffs’ antitrust claims in March 2013 on the basis that they had not alleged an anti-trust injury. However, it has since been determined that the plaintiffs can pursue an appeal against this decision in the Second Circuit Court of Appeal. If the claims are reinstated, this would have significant impact given the potential for the award of triple damages. Some commentators have speculated that the refusal by the Judge in the consolidated Forex action in the US to allow the defendants motion to dismiss the plaintiffs’ anti-trust claim may assist the plaintiffs in the LIBOR action in developing their arguments.

In the UK, more litigation is expected. We commented in our September 2014 Review on the two key cases to date; Graiseley Properties Limited & Ors v Barclays Bank plc (2012) and Deutsche Bank AG v Unitech Limited (2013). The Graiseley case settled in 2014 but the Deutsche Bank claim continues and will be monitored closely by others considering LIBOR- related claims. These cases have been joined by Property Alliance Group Limited v the Royal Bank of Scotland Plc which is expected to go to trial in May 2016, and which was the subject of a much publicised privilege battle earlier this year.

Regulatory investigations

Deutsche Bank is the latest financial institution to be fined by US and UK regulators for its participation in the manipulation of benchmark rates, which include, amongst others, LIBOR. (There have since been a number of global settlements relating to benchmark manipulation, including settlements relating to Forex in May and August this year.) In April 2015, Deutsche Bank agreed to pay fines totalling USD 2.5 billion, which comprised fines imposed by the FCA (GBP 226.8 million), DoJ (USD 775 million), US Commodity Futures Trading Commission (USD 800 million) and New York State Department of Financial Services (“NYSDFS”) (USD 600 million). It is notable that the settlement included the NYSDFS which required the Bank to terminate the employment of seven employees, including a Managing Director based in London, who were involved in the manipulation of LIBOR.

At the beginning of 2015, the former CEO of Martin Brokers, David Caplin and its former compliance officer Jeremy Kraft were fined GBP 210,000 and GBP 105,000 by the FCA respectively and banned from holding a significant influence function as a result of their lack of competence in their respective roles. These fines follow the fine of GBP 630,000 imposed on Martin Brokers in March 2014.

In July 2015, the FCA published a thematic review of oversight and controls of financial benchmarks. The review found that while there had been “some progress” on improving oversight and controls, there has been a lack of urgency to implement the changes which Tracey McDermott director of supervision – investment, wholesale and specialists at the FCA described as “disappointing”. In order to address the issues identified in the review, the  FCA is writing to the firms that participated to provide individual feedback.

Regulatory focus has extended well beyond the UK and US. For example BaFin, Germany’s financial regulator, is continuing its investigation into Deutsche Bank. According to press reports the regulator has criticised the Bank in respect of attempts to manipulate benchmark rates such as LIBOR in a report sent to Deutsche Bank in May 2015 and has threatened the bank with further sanctions. Reports suggest that the Bank responded to the regulator in July 2015 denying any allegations of wrong-doing and the regulators’ case against Arishu Jain, its outgoing joint leader have been dropped.

Going forward, domestic and international regulators continue to focus on putting measures in place to address the legal and regulatory loopholes that allowed the benchmark rate rigging to happen. On 10 March 2015, the FCA published a policy statement on bringing seven additional financial benchmarks into its regulatory and supervisory regime (PS15/6), following its consultation in December 2014. Later that month the FCA published its 2015/2016 business plan. This set out that the FCA would continue to pursue enforcement outcomes relating to benchmark rigging and would encourage reform within the UK and the EU.

A further key development has been the Fair and Effective Markets Review published by the Bank of England, FCA and the Treasury in June this year. The Review published 21 recommendations, including legislative changes that would make it illegal to manipulate markets such as foreign exchange, and rules to bring the fixed-income, currencies and commodities markets (FICC) into line with rules governing equities. There is also a proposal for a market standards body to oversee a new code of conduct for broader issues of corporate and personal behaviour akin to the Takeover Panel, which supervises the mergers and acquisitions market, as well as an extension of the Senior Managers Regime. In September 2013, the EU Commission proposed the Benchmark Regulation on the indices used as benchmarks in financial instruments and financial contracts. In May 2015, the Parliament announced it had agreed a negotiating mandate on the Benchmark Regulation with the aim of engaging with trialogues with the Council and the Commission. Trialogues were held in June 2015 and it is expected that the final version of the Regulation will be agreed by the end of 2015.


The LIBOR story will continue to run, and the Market will be watching the US civil litigation closely. LIBOR cannot of course be viewed in isolation, and beyond the investigation into Euribor, Swiss Franc LIBOR and other related rates, there has been investigation into the alleged fixing of other benchmark rates including ISDA and, most prominently, Forex. The pattern of activity in relation to Forex has been similar to that in relation to LIBOR, with mass regulatory settlements, and consolidated civil litigation proceeding in the US courts, with criminal proceedings against individuals beginning a couple of months ago. 

It has been commented that the USD 2bn settlement in  the US between nine banks and thousands of investors in relation to alleged manipulation of Forex may be the game changer that opens the floodgates to thousands of investor claims in the UK given the size of the UK Forex market. There have been suggestions that this may be assisted by the coming into force of the Consumer Rights Act on 1 October which includes provision for class actions in relation to anti-competitive conduct.

Whilst the Market will be watching these latest developments closely, the impact upon the market has not, to date, proved to be the “cat” event that some had feared. Regulatory and criminal settlements and penalties will not be picked up by the market, and defence costs of the large financial institutions have generally not been at the levels to exceed the policy retentions. 

Consumer Rights Act 2015

On 1 October 2015 the main provisions of the Consumer Rights Act 2015 (“CRA”) will come into force in the UK.  The CRA reforms a large body of consumer law in the UK, and broadly speaking applies to businesses of all kinds - including financial institutions, financial services professionals and wealth managers – in relation to their dealings with consumers (a term which is limited to individuals acting wholly or mainly for non-business purposes, but which will encompass even very sophisticated, high net-worth private individuals).  A number of key changes are introduced by the CRA, including:

  • Additional implied terms about the standard firms must meet when supplying services to consumers, in particular relating to information provided about the service and/or the firm
  • New consumer remedies for breach of the statutory implied terms in relation to the supply of services, including rights in certain circumstances to repeat performance or a price reduction
  • Changes to the law on unfair terms insofar as it relates to consumers
  • New specific provision for supplies of paid-for digital content to consumers
  • Establishment of an “opt-out” regime for consumer class actions in relation to anti-competitive behaviour 

Better Late Than Never?

In a surprise move, the Law Commissions announced on 17th September that a section on late payment damages has been in included in the Enterprise Bill, laid before Parliament the day before.

The Bill provides that a further clause will be inserted into the Insurance Act 2015. This new clause (to be called section 13A of the Insurance Act) will provide that it is an implied term of every insurance contract that an insurer must pay any sums due in respect of a claim made by the insured “within a reasonable time” (which will include a “reasonable time” to investigate and assess the claim).

Reasonableness will depend on all the relevant circumstances, including the size and complexity of the claim, the type of insurance and factors outside of the insurer’s control.

The new section will also provide that where an insurer can show that there were reasonable grounds for disputing the claim (either in full or as to quantum), the insurer will not breach the new implied term “merely by failing to pay the claim…while the dispute is continuing, but ..the conduct of the insurer in handling the claim may be a relevant factor in deciding whether that term was breached and, if so, when”. Thus, in principle, an insurer might breach the implied term even though it had reasonable grounds for contesting a claim (which is subsequently proved to be valid) – where, for example, the insurer has conducted the investigation unreasonably slowly, or has been slow to change its position when new facts come to light.

The remedies for breach of the new implied term are said to include damages (in addition to having the claim paid and interest).

The new section does envisage that insurers will be able to contract out of these changes (although not for consumer insurance). However, contracting out will not be valid where there has been a deliberate or reckless breach by the insurer. Recklessness in this context means where the insurer did not care whether or not it was in breach. The general contracting out rules set out in the Insurance Act will apply to terms in non-consumer policies relating to non-deliberate/reckless breaches.

The new section will not apply to settlement contracts.

The new section mirrors the clause previously inserted by the Law Commissions into the Insurance Act (and which was removed in order to allow that Act to follow the Law Commissions’ uncontroversial bills route).

As we have previously reported, it has long been argued that the rule in Sprung v Royal Insurance (UK) Ltd 1999 is an anomaly which places England and Wales out of step with many other jurisdictions (including Scotland). However, insurers have expressed concern that the late payment damages clause will introduce considerable uncertainty  for their working practices and might require additional expenditure, such as the recruitment of additional staff   to handle claims. There is also a perceived risk that, when suing insurers, policyholders might include a claim for damages for late payment in order to pressure insurers into dropping defences.

Exactly how much time will be reasonable for investigation and payment will become fully clear only with further future case law on the point. However, it might be worth noting that the FOS (which hears complaints from consumers and micro-businesses) already applies a remedy of damages for late payment, with broad acceptance from the industry. Consumers and micro-businesses are, in any event, far more likely to sustain losses as a result of late or non-payment of a claim than larger businesses, which in general will have better cash flows to cope with delayed insurance claims. Furthermore, insurers’ ability to (largely) contract out of the change when covering business risks might go some way to alleviate concerns.