Barclays may face more fines in the US over the Libor interest rate rigging scandal: explainer

Interest rate fines come as Barclays, JPMorgan, RBS and Citigroup are all expected to plead guilty to charges that they manipulated exchange rates for as much as a decade

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The Independent Online

Barclays may face a further fine from the US Justice Department over interest rate rigging, though it is not expected to plead guilty to the crime like Swiss bank UBS.

That fine, which could be as much as $60 million, comes on top of penalties facing Barclays and four other banks for manipulating currency benchmarks, according to Bloomberg.

Barclays and UBS had a non-prosecution agreement over Libor, but it is not expected to plead guilty to charges that it rigged the London Interbank Offered Rate, as UBS did.

However Barclays, JPMorgan, RBS and Citigroup are all expected to plead guilty to charges that they manipulated currency markets through exchange rates for as much as a decade.

As part of next week’s settlement over currency rigging, Barclays may have to pay fines of more than $1 billion to the Justice Department, the Department of Financial Services in New York and the Financial Conduct Authority in the UK. It has already set aside up to $2 billion to cover costs.

This time, banks may get charged – not just fined – if they violate settlements, which would be a first in the finance world.

Read our explainer on currency rigging ahead of those potential charges:

How did banks rig currency markets ?

In basic terms banks have been accused of colluding for at least a decade to manipulate exchange rates for their own gain.

Traders did this by operating around the fix – a mechanism used to determine the benchmark exchange rate or price of major currencies, which is used to value trillions of dollars in investments held by pension funds and money managers. One of the most common fixes happens at 4pm in London.

Why did they do it?

If traders could move the rate it could potentially make more of a profit.

Traders are said to have come together to do that in chatrooms with names like the cartel and the bandits club.

There they allegedly shared information on upcoming client orders – which are usually confidential.

In one scheme they got the pound-dollar rate down by sharing clients’ buying and selling secret information. They agreed to carry out their own trades to move the rate to where they wanted it. Within minutes one of the banks involved made over a £100,000.

Who lost out?

Mainly the banks clients lost out because they were paid rates that were much worse than the true rates in the market.

Those could be anyone frim a hedge fund placing a bet on the markets to a major corporate changing money for a big overseas transaction.

What was in it for the traders?

The traders didn’t actually make any money from rigging the markets themselves. But if their team consistently made higher profits, that would have been taken into account when their bonuses were awarded at the end of each year.

What has been done about it?

Six major banks including RBS and HSBC were fined £2.6 billion last year  for their role in the scandal.

Barclays, which did join the mass settlement, has set aside £2 billion to cover its bill relating to the investigation.

Around 40 FX staff at bank have been suspended, put on leave or let go because of their involvement.

There has been one arrest of a former RBS trader.

Are banks changing?

Banks are cracking down on the use of chat rooms, or changing the layout of the trading floors to make monitoring staff easier.