Commission fines banks €485 million for derivatives cartel

Commissioner for Competition, Margrethe Vestager, was shocked by the vulgar language used by the traders in the messaging platforms. [European Commission]

The European Commission fined JP Morgan (€337 million), Crédit Agricole (€114 million) and HSBC (€33 million) on Wednesday (7 December) for participating in a cartel in euro interest rate derivatives initially unveiled in December 2013.

Back then, Barclays, Deutsche Bank, RBS and Société Génerale reached a settlement with the executive for €1.5 billion.

The Commission found out that a group of traders and bankers working for seven banks used messaging platforms to alter “the normal course of pricing components” of several euro interest rate derivatives.

“They exchanged sensitive and confidential information about their trades and their strategy for trading,” commissioner for Competition, Margrethe Vestager explained on Wednesday, adding that the bankers often spoke in vulgar language.

“I would be seriously blushing if I were to repeat any of the [conversations] in that chat room,” she told reporters.

According to the executive, the cartel members told each other, between September 2005 and May 2008, their desired or intended EURIBOR submissions and exchanged sensitive information on their trading positions or their trading or pricing strategies.

EU's financial indices regulation ‘bizarre and wrong’

The regulation of financial indices and benchmarks will stifle innovation and is part of a move by Brussels to “regulate anything they don’t understand”, Andrew Clare told EURACTIV.

The result is that the cartel members did not compete with each other.

As Vestager noted, the importance of the market for euro interest rate derivatives is very significant. According to the Bank for International Settlements, in June 2016, the gross market value of euro interest rate over-the-counter (OTC) derivatives represented €5980 billion globally, which is around 42% of all OTC derivatives of all asset classes in any currency.

The decision is the latest episode in a long crusade to punish the malpractices of bankers and other financial players in the aftermath of the financial meltdown in 2007.

Since December 2013, the Commission has made several decisions concerning financial benchmarks and related financial instruments, such as those related to the Yen, Swiss Franc and Libor.

Meanwhile, in June, the European Parliament and member states adopted a new Regulation on benchmarks. The new EU rules reinforce the investigative and sanctioning powers of financial regulators in cases of benchmark manipulation.

“Today’s message sends a clear message: banks and all companies have to respect EU rules,” Vestager emphasised.

Commission charges HSBC, JPMorgan, Credit Agricole with rate-rigging

European Union antitrust regulators charged Europe’s biggest bank HSBC, US peer JPMorgan and France’s Credit Agricole on Tuesday (20 May) with rigging financial benchmarks linked to the euro, exposing them to potential fines.

The affected banks denied any wrongdoing.

“We have cooperated fully with the European Commission throughout its five-year investigation,” JP Morgan said in a statement.

“We did not engage in any wrongdoing with respect to the EURIBOR benchmark. We will continue to vigorously defend our position against these allegations, including through possible appeals to the European courts.”

Credit Agricole also announced that it would appeal the decision.

Europe has not been alone on its efforts to punish the abuses of financial agents.

Libor/Euribor bank cartel hit with largest Commission fine

EU antitrust regulators fined six financial institutions including Deutsche Bank, Royal Bank of Scotland and Citigroup a record total of €1.71 billion today (4 December) for rigging financial benchmarks.

Last July, four former Barclays bankers were jailed in Britain for manipulating the Libor interest rate between 2005 and 2007.

In the US, two bankers were found guilty of rigging Libor and received jail terms of two years or less.

While junior employees have been jailed, senior managers, who could have been involved in some of the scandals, have not.