FCA Fines And Bans 'reckless' Libor Rigger Danziger

Danziger was found by the regulator to have been "knowingly concerned" in RBS's failure to observe proper standards of market conduct between February 2007 and November 2010.

Update: SONIA set to replace Libor by 2021

Specifically, the FCA said Danziger, whose role involved trading products referenced to Japanese yen Libor, routinely made requests to RBS's primary submitters, intending to benefit the trading positions for which he and other derivatives traders were responsible. He then took those trading positions into account when acting as a substitute submitter.

On two occasions, he also obtained a broker's assistance to attempt to manipulate the yen Libor submissions of other banks.

In addition, Danziger entered into 28 so-called wash trades - 'risk-free' trades, with the same party, in pairs that cancelled each other out and for which there was no legitimate commercial rationale.

The purpose of these wash trades was to make or facilitate brokerage payments to two firms of brokers in return for personal hospitality.

Executive director of enforcement and market oversight at the FCA Mark Steward said Danziger's "reckless disregard" of proper market conduct standards "has no place in the financial services industry".

"Market participants cannot turn a blind eye to what the community, through its laws and regulations, expects, nor apply their own, lower standards," he added.

"This substantial fine and ban should reinforce that message."

BoE: Continued Libor use is a threat to financial system

Meanwhile, Danziger's lawyer Ben Rose, of the law firm Hickman & Rose, said his client "continues to dispute the FCA's findings and feels strongly that he is being scapegoated for the systemic problems relating to LIBOR".    

 "However, the last five years have been incredibly challenging," he added. 

"[Danziger] is emotionally exhausted and financially drained.

He leaves it to others, better resourced, to press the FCA for answers, hopeful that, one day, the real truth will come out."

The FCA made its initial warning notice to Danziger on 18 June 2014, but proceedings were delayed due to the ongoing criminal investigation by the Serious Fraud Office into certain individuals who formerly worked at RBS.

On 6 February 2013, the regulator imposed a financial penalty of £87.5m to RBS for significant failings in relation to Libor, contributing to the total of £426m in fines that it handed out in the course of the scandal.

Danziger's ban follows shortly after that of former Citigroup and UBS trader Tom Hayes, following his 2015 conviction for conspiracy to defraud in relation to the manipulation of Yen Libor.

2012 scandal

The 2012 Libor rigging scandal came to light when Barclays became the first of many banks to be punished by authorities for the manipulation of the rate, with fines totalling billions of pounds.

Six banks, including both UBS and Citigroup, paid a combined $5.8bn in fines to the US Justice Department and other regulators, as traders were handed jail sentences.

Controls over Libor calculations have been tightened since the scandal, and responsibility for the calculations has been handed to an independent third party, ICE Benchmark Administration.

FCA chief executive Andrew Bailey has said publicly that he wants an alternative to Libor in place after 2021, and the Bank of England recently warned the reliance on the benchmark when setting mortgages, credit card loans and other global contracts could be a threat to the financial system.

Regulators ramp up enforcement actions on individuals

SONIA

In November 2016, the FCA and the Bank of England outlined the "next phase" of plans that will work towards replacing the Libor benchmark with the Sterling Overnight Index Average (SONIA).

From January 2018 the market-led Working Group on Sterling Risk-Free Rates will have an extended mandate and broader participation in making the transition, with public consultation expected to be published in the first half of 2018.

SONIA is deemed to be a near risk-free alternative derivatives reference rate that reflects bank and building societies' overnight funding rates in the sterling unsecured market.