U.K. FSA Is Reviewing Cross-Border Allegations in Libor Probe

Britain’s Financial Services Authority is investigating “significant cross-border allegations in regards to Libor.”

Tracey McDermott, the regulator’s acting head of enforcement, publicly disclosed the probe for the first time in a speech in London today.

The U.K. regulator is probing whether banks’ proprietary- trading desks exploited information they had about the direction of Libor to trade interest-rate derivatives, potentially defrauding their firms’ counterparties, two people familiar have said.

The rate, a benchmark for about $360 trillion of financial products worldwide, is derived from a survey of banks conducted daily on behalf of the British Bankers’ Association in London. The lenders are asked how much it would cost them to borrow from one another for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and Swiss francs. After a predetermined number of quotes are excluded, those remaining are averaged and published for each currency by the BBA before noon.

Regulators worldwide are investigating whether banks attempted to manipulate the London, Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor. The U.S. Securities and Exchange Commission, U.S. Commodity Futures Trading Commission, U.S. Department of Justice, and Japan’s Financial Services Agency are all involved. The probes are being led separately, with regulators sharing some information.

E-Mail Code Words

The U.K. FSA is investigating whether banks’ Libor submissions reflected their actual cost of borrowing and is scrutinizing market data for potential anomalies, another person familiar with the investigation said. The watchdog is scanning e-mails between bankers for code words that could be used to manipulate Libor, a person familiar with the case has said.

HSBC Holdings Plc (HSBA), Barclays Plc (BARC) and Royal Bank of Scotland Group Plc (RBS) are among banks that have said they’ve received requests for information from global regulators. RBS, the U.K.’s largest government-owned lender, has dismissed at least four employees in connection with the probes, two people briefed on the move have said.

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

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