Enforcement Watch

Deutsche Bank Libor/Euribor settlement includes substantial Principle 11 fine

Deutsche Bank Libor/Euribor settlement includes substantial Principle 11 fine

23 April 2015

In the latest instalment of the ongoing Libor scandal, the FCA fined Deutsche Bank AG (“DB”) £227 million for its part in the misconduct that led to the manipulation of the interbank lending rates. As regards the Libor/Euribor conduct, much of the misconduct will be familiar. However, an interesting aspect of this case and the associated fine is the substantial amount of the fine (£101 million) attributed to DB's Principle 11 failings. In summary, the breaches were:

  • Principle 5 (observing proper standards of market conduct)
    The FCA found that, between 2005 and December 2010, traders at DB took steps to influence the Libor and Euribor rates by (a) attempting to directly influence the submissions provided by DB; (b) attempting to influence the submissions of other banks and otherwise colluding with other banks to coordinate submissions: and (c) offering cash in the market to create a false impression of the supply of funding.
  • Principle 3 (organising affairs responsibly and effectively)
    The FCA found that DB had failed to put in place adequate systems and controls to identify and mitigate the risk of misconduct. These included: (a) failing to keep records of who the submitters were; (b) failing to provide formal training to submitters; (c) allowing traders and submitters to sit in close proximity; and (d) allowing submitters themselves to trade derivatives and profit from movements in Libor. Despite being on notice of these risks from around April 2008, the FCA found that it was not until May 2011 that DB began the process of introducing formal systems and controls, and that it was not until February 2013 that DB had controls in place which fully addressed these issues. In addition, the FCA found that DB had inadequate systems for recovering and identifying trader telephone calls (it took over two years for DB to identify and disclose relevant calls) and for mapping trading books to traders (DB had no system for recording which traders were responsible for individual trades, meaning that a slow process of manual reconciliation was required).
  • Principle 11 failings (dealing with the FCA in an open and co-operative way)
    The FCA found that DB had acted in breach of Principle 11 by: (a) falsely stating (on more than one occasion) that the German regulator, BaFin, had prohibited it from disclosing to the FCA a report commissioned by BaFin concerning the misconduct; (b) providing an attestation stating that it had carried out spot checks on its LIBOR submissions, that it had in place monitoring tools to flag Libor specific terms in all email and instant messaging communications, and that it had adequate systems and controls in relation to Libor. This was in circumstances where all of this was known to be false by the person who drafted the attestation, and where the true position went unchecked by the two senior managers who were named in and approved it, and the senior manager who signed it; and (c) hampering the FCA’s investigation by failing to provide complete and accurate information in a timely manner and, in one instance, destroying (albeit not intentionally) 482 tapes of telephone calls that fell within the scope of an FCA notice requiring their preservation.
  • Penalty
    DB settled early and thus received a 30% discount on the total fine of £324 million. DB was also hit with fines from US regulators, specifically an £800 million fine from the Commodities Futures Trading Commission, a $775 million fine from the US Department of Justice and a $600 million fine from the New York Department of Financial Services. The total fine, some £1.68 billion, is the largest fine so far handed out to any financial institution in respect of the Libor scandal.

You can read the Final Notice here.


The FCA found that the direct involvement of managers and senior managers aggravated the seriousness of all of the above categories of breaches. However, the most interesting aspects of this Final Notice are the Principle 11 breaches and the extent of the resulting fine, not far short of half the total financial penalty.

The FCA pointed to the misleading statements regarding the BaFin report as being the most egregious of the Principle 11 breaches and regarded the making of the relevant statements as reckless. A key feature of the FCA’s criticisms is the failure of DB / relevant individuals to correct statements that were made even when they were discovered to have been misleading. In particular, the FCA criticises a senior manager who is said to have addressed the Director of Enforcement on the accuracy of the statements made, but later failed to contact the FCA when he became aware his representations may have been misleading. This was also an issue in the case of the false attestation, where, even when DB began to investigate and put in place proper systems and controls, it failed explicitly to correct the false information that it had previously provided.

As yet, no enforcement action is visible against individuals in respect of these findings and, assuming it has jurisdiction over the relevant individuals, it will be interesting to see how the FCA approaches this. Against the background of the new Senior Managers Regime, this is particularly the case in respect of attestations and the steps that those signing them, and those approving them, need to take in order to be satisfied that they are accurate.

It is also noteworthy that, in publishing the Final Notice, the FCA saw a further opportunity to reference the importance of culture. Cultural change remains a key theme for the FCA, and we note that, as part of the settlement, DB will also be subject to ongoing supervisory action in respect of its success in implementing such change.

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