RBS 2013 Annual Report Download - page 479
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Notes on the consolidated accounts
477
LIBOR, other trading rates and foreign exchange rates
On 6 February 2013, the Group announced settlements with the Financial
Services Authority in the United Kingdom, the United States Commodity
Futures Trading Commission and the United States Department of
Justice (DOJ) in relation to investigations into submissions,
communications and procedures around the setting of the London
Interbank Offered Rate (LIBOR). RBS agreed to pay penalties of £87.5
million, US$325 million and US$150 million to these authorities
respectively to resolve the investigations. As part of the agreement with
the DOJ, RBS plc entered into a Deferred Prosecution Agreement in
relation to one count of wire fraud relating to Swiss Franc LIBOR and one
count for an antitrust violation relating to Yen LIBOR. In addition, on 12
April 2013, RBS Securities Japan Limited entered a plea of guilty to one
count of wire fraud relating to Yen LIBOR and on 6 January 2014, the US
District Court for the District of Connecticut entered a final judgment in
relation to the conviction of RBS Securities Japan Limited pursuant to the
plea agreement. On 12 April 2013, RBS Securities Japan Limited
received a business improvement order from Japan’s Financial Services
Agency requiring RBS to take remedial steps to address certain matters,
including inappropriate conduct in relation to Yen LIBOR.
RBS Securities Japan Limited is taking steps to address the issues raised
in compliance with that order. In June 2013, RBS was listed amongst the
20 banks found by the Monetary Authority of Singapore (MAS) to have
deficiencies in the governance, risk management, internal controls and
surveillance systems relating to benchmark submissions following a
finding by the MAS that certain traders made inappropriate attempts to
influence benchmarks in the period 2007 - 2011. RBS was ordered at that
time to set aside additional statutory reserves with MAS of SGD1-1.2
billion and to formulate a remediation plan. RBS has submitted its
remediation plan to the MAS.
The Group is co-operating with investigations and new and ongoing
requests for information by various other governmental and regulatory
authorities, including in the UK, US and Asia, into its submissions,
communications and procedures relating to a number of trading rates,
including LIBOR and other interest rate settings, ISDAFIX and non-
deliverable forwards. The Group is also under investigation by
competition authorities in a number of jurisdictions stemming from the
actions of certain individuals in the setting of LIBOR and other trading
rates, as well as interest rate-related trading.
In December 2013, the Group agreed to pay settlement penalties of
approximately EUR 260 million and EUR 131 million to resolve
investigations by the European Commission into Yen LIBOR competition
infringements and EURIBOR competition infringements respectively.
In addition, various governmental and regulatory authorities have
commenced investigations into foreign exchange trading activities
apparently involving multiple financial institutions. The Group has
received enquiries from certain of these authorities including the FCA.
The Group is reviewing communications and procedures relating to
certain currency exchange benchmark rates as well as foreign
exchange trading activity. At this stage, the Group cannot estimate
reliably what effect, if any, the outcome of the investigation may have on
the Group.
Technology incident in June 2012
On 19 June 2012, the Group was affected by a technology incident, as a
result of which the processing of certain customer accounts and
payments were subject to considerable delay. The cause of the incident
has been investigated by independent external counsel with the
assistance of third party advisors. The Group agreed to reimburse
customers for any loss suffered as a result of the incident and the Group
made a provision of £175 million in 2012.
The incident, the Group's handling of the incident, and the systems and
controls surrounding the processes affected, are the subject of regulatory
investigations in the UK and in the Republic of Ireland.
On 9 April 2013, the UK Financial Conduct Authority (FCA) announced
that it had commenced an enforcement investigation into the incident.
This is a joint investigation conducted by the FCA together with the UK
Prudential Regulation Authority (PRA). The FCA and PRA will reach their
conclusions in due course and will decide whether or not to initiate
enforcement action following that investigation. While the outcomes of the
FCA and PRA investigations will be separate, the regulators have
indicated that they will endeavour to co-ordinate the timescales of their
respective investigations. Separately the Central Bank of Ireland has
initiated an investigation.
Interest rate hedging products
In June 2012, following an industry wide review, the FSA announced that
the Group and other UK banks had agreed to a redress exercise and past
business review in relation to the sale of interest rate hedging products to
some small and medium sized businesses who were classified as retail
clients or private customers under FSA rules. On 31 January 2013, the
FSA issued a report outlining the principles to which it wished the Group
and other UK banks to adhere in conducting the review and redress
exercise.
The Group will provide fair and reasonable redress to non-sophisticated
customers classified as retail clients or private customers, who were mis-
sold interest rate hedging products. In relation to non-sophisticated
customers classified as retail clients or private customers who were sold
interest rate products other than interest rate caps on or after 1
December 2001 up to 29 June 2012, the Group is required to (i) make
redress to customers sold structured collars; and (ii) write to customers
sold other interest rate hedging products offering a review of their sale
and, if it is appropriate in the individual circumstances, the Group will
propose fair and reasonable redress on a case by case basis.
Furthermore, non-sophisticated customers classified as retail clients or
private customers who have purchased interest rate caps during the
period on or after 1 December 2001 to 29 June 2012 will be entitled to
approach the Group and request a review.
The redress exercise and the past business review are being scrutinised
by an independent reviewer, who will review and agree any redress, and
will be overseen by the FCA.