The interest rate rigging scandal involving large banks which began in London, England, last year is growing into one of the largest international financial scandals ever, as it has now spread to Germany, Japan and Singapore. The financial supervisory authorities in the US and UK have already fined Barclays plc, a British bank, $450 million, and UBS, the largest bank in Switzerland, $1.5 billion, in connection with the rigging of the London Interbank Offered Rate (LIBOR). Recently, Royal Bank of Scotland Group plc (RBS) was imposed penalties of $612 million in total on the grounds that it obtained unjust gains in the interest rate options markets by providing false LIBOR data to the markets.
Further, it has been reported that the German financial regulatory authorities are investigating the potential rigging of the Euro Interbank Offered Rate (EURIBOR), and the Japanese financial regulatory authorities are investigating the potential rigging of the Tokyo Interbank Offered Rate (TIBOR). The Monetary Authority of Singapore has recently stated that it confirmed the rigging of foreign exchange rates used in non-deliverable forwards (NDFs) in Singapore, the second largest foreign exchange market in Asia after Tokyo.
As a result, in the UK, the British Bankers’ Association (BBA) has been stripped of its role as LIBOR administrator and the authority to set LIBOR has been transferred to the newly established Financial Conduct Authority (FCA), while, in Singapore, the Monetary Authority of Singapore is considering terminating the Singapore Interbank Offered Rate (SIBOR), and stricter regulation of interest rate setting by individual countries seems likely. Furthermore, the financial supervisory authorities in each country also seem more likely to expand the scope of their financial regulation due to the increasing distrust overall in the financial systems.
Meanwhile, in Korea, in around July 2012 the Korea Fair Trade Commission (KFTC) launched on-site investigations into 10 securities companies which report 91 day CD rates to the Korea Financial Investment Association and 9 related banks, upon determining that the failure of the CD rates to reflect market interest rates was the result of collusion among such financial institutions. However, the banking industry and the financial regulatory authorities have expressly stated that they doubt whether there was actual collusion on CD rates, and thus far, the KFTC has not made an official announcement on the results of their investigations.
The financial regulatory authorities are currently reviewing KORIBOR, monetary stabilization bonds, bank bonds and COFIX as an alternative to CD rates, which are used as the reference interest rate for variable loan products, and among them, KORIBOR is seen as the best option. However, since KORIBOR also may raise issues, it is necessary to wait and see how this situation develops.