UK fraud squad considers criminal probe into rate rigging at Lloyds - sources

LONDON Wed Jul 30, 2014 3:11pm BST

A sign is seen outside a branch of Lloyds Bank in central London February 3, 2014.   REUTERS/Luke MacGregor

A sign is seen outside a branch of Lloyds Bank in central London February 3, 2014.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - Britain's Serious Fraud Office (SFO) is examining material that might trigger a criminal investigation into former and current staff at Lloyds Banking Group, the partly state-owned bank, sources said on Wednesday.

The sources said the SFO was looking at information it had been handed by the UK Financial Conduct Authority (FCA) some months ago linked to an inquiry into alleged manipulation of benchmark rates, including one used to set the fees on a taxpayer-backed funding scheme for banks.

Lloyds, 25 percent state-held, declined to comment, saying only that it assists all authorities with investigations. The SFO simply said it worked closely with UK and overseas agencies.

On Monday, Lloyds was fined a joint $370 million (219 million pounds) by the FCA and U.S. regulators for its part in a global interest rate rigging scandal. Lloyds also became the first bank to face allegations of attempting to manipulate the "repo" rate.

Seven banks and brokerages have so far settled U.S. and UK regulatory allegations of interest rate rigging as a result of a global investigation and 17 men have been charged with fraud-related offences.

The repo rate determined the fees Lloyds paid to access the Bank of England's special liquidity scheme (SLS), temporarily set up in 2008 to shore up UK banks during the financial crisis. The FCA said on Monday four traders, including two managers, were involved.

Bank of England Governor Mark Carney has already told Lloyds' Chairman Norman Blackwell that the manipulation could prompt criminal action against those involved.

"Such manipulation is highly reprehensible, clearly unlawful and may amount to criminal conduct on the part of the individuals involved," Carney wrote on July 15 in a letter published by Lloyds on Monday.

LLOYDS TIP-OFF

Lloyds spotted alleged repo rate fixing during an internal investigation into whether traders manipulated benchmark interest rates such as Libor (London interbank offered rate), against which around $450 trillion of financial products from derivatives to student loans are priced globally.

It passed this information on to the FCA in 2013, according to one of the sources.

If the FCA discovers possible criminal wrongdoing during regulatory inquiries, it routinely passes this on to the SFO.

The SFO said: "The SFO’s investigation into rate rigging involves considerable co-operation and information sharing with other agencies, including the Financial Conduct Authority and the U.S. Department of Justice.”

Two thirds of the FCA's 105 million pound fine slapped on Lloyds on Monday was due to the bank's attempt to fix the repo rate between April 2008 and Sept. 2009.

The bank was also fined $105 million by the U.S. Commodity Futures Trading Commission and had a $86 million fine imposed by the U.S. Department of Justice for attempting to fix the Libor rate for yen, sterling and the U.S. dollar.

The FCA alleged that 19 staff at Lloyds and its Bank of Scotland subsidiary were directly involved in or aware of rate rigging. Another three are also under investigation by the bank, one of the sources said.

To date, six members of Lloyds' staff have been suspended, six others face disciplinary proceedings and 10 have left the bank.

Lloyds staff have not been among the 17 charged to date with fraud-related offences by U.S. and UK prosecutors in connection with benchmark interest rate rigging allegations.

Those men worked at Swiss bank UBS, Britain's Barclays, brokerages RP Martin and ICAP and Dutch group Rabobank.

(Editing by Jeremy Gaunt)

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