133 traders tried to rig key financial rates, says MAS

Central bank censures 20 banks, including DBS, OCBC and UOB

By Alvin Foo, The Straits Times, 15 Jun 2013

A REVIEW of a key banking process here has outlined widespread attempts to rig the way crucial interest rates are set.

The report from the Monetary Authority of Singapore (MAS) released last night, which covered the period between 2007 and 2011, said 133 traders from 20 banks were involved in trying to rig the benchmark rates.

All three local lenders - DBS Bank, OCBC Bank and United Overseas Bank - were on the list, as well as foreign banks including Australia's ANZ, Barclays, HSBC and Royal Bank of Scotland (RBS).

MAS, which spent a year on the review, said the banks had deficiencies in the governance, risk management, internal controls and surveillance systems in their benchmark submissions.

It said that while there was no conclusive finding that the rates were successfully manipulated, the traders' conduct showed a lack of professional ethics.

In censuring the 20 banks, MAS has demanded that 19 of them set aside extra reserves with it at zero interest for a year while they get their house in order.

Holland's ING, British RBS and Swiss giant UBS are putting aside the most, between $1 billion and $1.2 billion each. In total, the amount to be placed with MAS could range from $8.5 billion to as much as $12 billion. Only German bank Commerzbank does not have to deposit extra funds.

The amounts do not constitute fines, but the banks will be hit as they will not be able to use the cash for their own purposes.

The traders fingered by the report were said to have made several efforts to manipulate key benchmarks, including one that affects home loans. The Association of Banks in Singapore said consumers who took up home loans and corporate loans were not affected by the misconduct.

About 75 per cent of the 133 traders cited have quit or have been sacked, said MAS. Those who remain employed have been disciplined with sanctions such as demotions and lost bonuses.

Some cases have been referred to the Commercial Affairs Department and the Attorney-General's Chambers. No crime seems to have been committed based on the available information and evidence, MAS noted.

MAS deputy managing director Teo Swee Lian said last night: "MAS has taken firm supervisory actions against the banks, based on a careful assessment of their respective deficiencies."

The MAS review was prompted by revelations last year that the Libor rate in Britain had been manipulated by traders at Barclays, RBS and UBS - three of the banks cited in the MAS report.

Investigators here looked into how the Singapore dollar interest rate benchmarks, including the Singapore Interbank Offered Rates (Sibor), are set. The investigation involved checking more than 100 million documents.

The report also outlined moves to address shortcomings in the setting of such key benchmark rates, with additional regulation as well as industry measures for a more robust and transparent process.

MAS has proposed new regulations for financial benchmarks, which include criminalising attempts to rig these rates and subjecting the setting of several key benchmarks to regulatory oversight.

Some analysts, such as SIM University finance professor Sundaram Janakiramanan, felt MAS should have gone further and fined the errant banks.

Banks said they have been cooperating with MAS to address the shortcomings. A UBS spokesman said it has been working closely with MAS to address all issues related to the review.

OCBC chief executive Samuel Tsien said: "There were deficiencies found in our rate submission process. These incidences were not systemic or widespread, but we took them seriously. We have taken tough actions to instil greater discipline in this area."

MAS wants tough laws to punish benchmark manipulation
By Yasmine Yahya, The Straits Times, 15 Jun 2013

THE Monetary Authority of Singapore (MAS) is proposing tough new laws to criminalise and penalise attempts to manipulate financial benchmarks, such as those used to set home loans.

In response to evidence of attempted rate rigging exposed by MAS yesterday, banks here have promised to enhance the way they set benchmarks and the controls surrounding the process.

MAS says a financial benchmark is any price, estimate, rate, index or value used to determine interest rates and prices of financial products such as loans or derivatives investment products.

One of the best known is the Singapore Interbank Offered Rate (Sibor), against which most home loan rates are pegged here.

In a consultation paper put out yesterday, the regulator proposed criminal and civil sanctions in the Securities and Futures Act (SFA) against anyone who tries to manipulate any financial benchmark.

These would be similar to existing laws in the SFA against false trading and the manipulation of securities, MAS said.

Up to now, banks here have been left to govern themselves when it comes to setting financial benchmarks. But given reviews around the world, MAS said it believes there is scope for formal government regulation there too.

MAS has proposed to regulate the activities related to the setting of "key" financial benchmarks. For now, these are Sibor, the Swap Offered Rate (SOR) and foreign exchange benchmarks. MAS could designate any other benchmark a "key" one if it feels it is susceptible to manipulation and is of systemic importance.

The Association of Banks in Singapore (ABS), which administers key benchmarks, and the banks that set them, will also be subject to new rules. For instance, ABS will have to establish regular monitoring and surveillance of benchmark submissions and put in place systems to identify and mitigate conflicts of interest.

The banks that set benchmarks will have to appoint an external auditor to conduct annual reviews of its benchmark submission activities. MAS also proposed to enhance its powers to compel banks to be benchmark submitters, so there will always be a big enough pool of them, as a benchmark-setting panel that is too small would increase the risk of manipulation.

ABS and the Singapore Foreign Exchange Markets Committee (SFEMC) said they have taken steps to enhance the transparency and efficiency of the process. For example, they will get banks to calculate benchmarks by using market trading data rather than by submissions. However, Sibor will still be set the same way as before because it reflects each bank's inter-bank borrowing cost. Sibor is calculated with reference to surveys from banks.

But ABS and SFEMC said they have strengthened the governance of this process. For example, they are refreshing the panel of contributors to Sibor and are forming an oversight committee to supervise benchmark administration.

The industry will also put in place reference checks so that employers will be aware if the prospective joiner is someone who has been implicated in attempts to rig a benchmark.

Banks here, including UOB, said they will implement the measures and strengthen their policies. DBS said it has taken steps to enhance controls on benchmark submissions and will further review areas of possible improvement.

An ANZ spokesman said: "We believe the new rate setting governance framework, and the process announced by the ABS, will further cement Singapore's reputation for fiduciary standards and as a global financial hub."