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FCA fine inter-dealer broker for Libor manipulation

The Financial Conduct Authority has fined Martin Brokers (UK) Ltd, an inter-dealer broker, £630,000 for misconduct relating to the calculation of JPY LIBOR. As justification for the fine, it cites breaches of Principle 3, – failing to take reasonable care to organise and control its affairs responsibly and effectively, and Principle 5, – failing to observe proper standards of market conduct.

The FCA States that the firm breached Principle 3 by failing to have adequate controls and risk management process in place to oversee its broking activity. Principle 5 was breached by brokers at the firm colluding with a trader at UBS as part of a coordinated attempt to influence JPY LIBOR submissions made by panel banks. The Brokers received £258,000 in illicit commissions for ‘wash trades’ during the period under investigation.

“The culture at Martins was that profit came first,” said Tracey McDermott, head of enforcement and financial crime at the FCA. She continued: “Compliance was seen as a hindrance… In this environment, broker misconduct was almost inevitable. Similar cultural failings at other firms have caused havoc in the financial services industry.”

Martins are the sixth firm overall to be fined by the FCA, who has now imposed penalties of £426.63 million on entities for manipulative conduct with respect to LIBOR submissions. The FCA said it would have fined Martins 3.6 million pounds, but it was reduced by 75% to £900,000 due to the financial circumstances of the firm, including the other regulatory liabilities the firm is facing globally with regards to LIBOR. The firm also qualified for an early settlement deduction of 30% reducing the fine further to £630,000 ($1.02m), and were given three years to pay the fine in instalments.

Additionally, the U.S. Commodity Futures Trading Commission (CFTC) has also issued an Order that RP Martins Holdings Limited, and its subsidiary Martin Brokers (UK) Ltd, must pay $1.2 million USD as a civil monetary penalty in connection with JPY LIBOR manipulation.

Controversy still surrounds interest rate benchmarks globally. Most recently, lawmakers in Japan have questioned “unnatural movements” in TIBOR, the Tokyo rate which underpins trillions of Yen in loans. They are asking the Financial Services Agency to further scrutinise the rates and submission process for TIBOR. “We want to see whether the rate submissions by individual banks can be deemed appropriate,” said the Japanese Bankers Association chairman Nobuyuki Hirano, in a March interview with the Financial Times.

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