Lloyds Risks Criminal Action For Fee-Fixing

The Bank of England (BoE) governor has warned Lloyds Banking Group that "clearly unlawful" conduct over fee manipulation may amount to criminal conduct.

In a letter dated July 15, Mark Carney told Lloyds chairman Lord Blackwell that attempts to reduce fees payable to the BoE under the special liquidity scheme (SLS) were "reprehensible".

Mr Carney said: "Such manipulation is highly reprehensible, clearly unlawful and may amount to criminal conduct on the part of the individuals involved."

The revelation of potential comes as Lloyds was fined £218m by UK and US regulators over manipulation of the Libor benchmark, along with a £7.76m compensation figure to the BoE over the now-defunct SLS.

The UK regulator, the Financial Conduct Authority (FCA), fined Lloyds £105m, while the US Commodity Futures Trading Commission (CFTC (Taiwan OTC: 1586.TWO - news) ) fined Lloyds £62m and the US Department of Justice penalty was £51m.

Sky sources indicate that nine former Lloyds employees now face criminal charges in the US.

The FCA fine was for serious Libor and other benchmark failings by Lloyds and HBOS both before and after their merger.

In a statement following the announcement, Lloyds apologised and revealed the bank's previously lax operating culture was to blame.

It said: "The group condemns the actions of the individuals responsible for the conduct in question, which it regards as totally unacceptable and unrepresentative of the cultural changes that the group has implemented.

"The actions will be deplored by all employees. The manipulation of submissions covered by the settlements took place between May 2006 and 2009 and the individuals involved have either left the group, been suspended or are subject to disciplinary proceedings."

CFTC director of enforcement Aitan Goelman said: "By today’s action, Lloyds is being held accountable for serious misconduct."

The CFTC said the "unlawful conduct of Lloyds" undermined the integrity of Libor, a critical global interest rate benchmark that is the basis of trillions of dollars of financial instruments.

The FCA said that between April 2008 and September 2009, there was also manipulation of submission rates payable to the BoE for participation in the taxpayer-backed SLS.

It said £70m of the UK fine related to attempts to manipulate the fees payable to the BoE for participation in the SLS.

In addition to the inter-bank rate-rigging, the so-called repo rate benchmark suffered manipulation attempts.

The repo rate, a now discontinued benchmark, was published daily by the British Bankers' Association until December 2012.

Lloyds would have been hit by a 30% larger FCA fine if it did not settle at an early stage.

More than £2bn has now been paid by banks globally to regulators over alleged manipulation, including £290m by Barclays (LSE: BARC.L - news) and £390m by RBS (LSE: RBS.L - news) .

The FCA said more than a dozen individuals at Lloyds, including seven managers, were directly involved in or were aware of, the Libor manipulation.

FCA director of enforcement and financial crime Tracey McDermott said: "The firms were a significant beneficiary of financial assistance from the Bank of England through the SLS.

"Colluding to benefit the firms at the expense, ultimately, of the UK taxpayer was unacceptable. This falls well short of the standards the FCA and the market is entitled to expect from regulated firms."

On Friday, Sky News City Editor Mark Kleinman revealed the 25% taxpayer-owned group would seek to clawback bonuses paid to at least 15 former employees implicated in the inter-bank rate scandal.

Following the announcement of the fines, the BoE said in a statement: "On June 14 the Chancellor of the Exchequer announced the launch of the Fair and Effective Markets Review.

"Led by the bank, in conjunction with the FCA and HM Treasury, this review seeks to restore public confidence in wholesale financial markets and ensure the highest standards of conduct by the participants.

"This incident represents yet another demonstration of the pressing need for such a review."