European Commission Fines London-Based Broker ICAP 14.9 Million Euros For Facilitating Yen Libor Cartels

A View from Constantine Cannon’s London Office

By Yulia Tosheva and James Ashe-Taylor

The European Commission (“EC”) has fined London-based ICAP, the world’s largest broker of interest-rate swaps, for facilitating bank cartels in the market for Yen-denominated interest rate derivatives.

The EC already imposed heavy fines of 669 million euros on UBS, the Royal Bank of Scotland, Deutsche Bank, Citigroup and the British broker, RP Martin, in December 2013, after they admitted their involvement in several cartels that manipulated the Yen Libor benchmark.  The cartels involved traders’ discussions on Japanese Yen Libor submissions and exchange of commercially sensitive information on trading positions and future Japanese Yen Libor submissions.  As part of the same investigation, the EC opened proceedings against ICAP, which refused to admit guilt and did not join the financial institutions in paying fines to settle the case.

The EC’s investigation concluded that ICAP facilitated six out of the seven Japanese Yen cartels, in particular by disseminating misleading information about expected Japanese Yen Libor rates, serving as a communications channel between traders and using its contacts at various banks in an attempt to influence their Yen Libor submissions.

The ICAP fine significantly exceeds the 247,000-euro penalty that RP Martin, another broker, agreed to pay last December after it settled with the EC.  The EC said that the ICAP fine reflected “the gravity, duration and nature of ICAP’s involvement as a facilitator as well as the need to ensure that the fine has a sufficiently deterrent effect.”

Commissioner Margrethe Vestager, who is in charge of EC competition policy, stated: “Today’s decision to fine the broker ICAP sends a strong signal that assisting companies in their cartel activities has severe consequences.”  She added that the decision marks the successful completion of the EC’s long-running antitrust investigation in the Yen interest rate derivatives sector but not the end of the EC’s efforts to fight anticompetitive practices in financial markets.

ICAP said that the penalty imposed by the EC was “wrong both in fact and in law.”  It argued that the fine was based on the same underlying case for which it had been already fined 55 million pounds by the UK Financial Conduct Authority and the U.S. Commodity Futures Trading Commission in September 2013.  ICAP insisted that “this is a regulatory matter that has already been settled” and is not a competition issue.  “The EC has presented no evidence that ICAP facilitated a competition law violation,” the company said in a statement.

ICAP is planning to appeal the EC’s decision before the European Courts in Luxembourg.  The proceedings raise a variety of legal issues, such as the definition of a cartel “facilitator.”  The appeal before the European General Court is expected to take two to three years.

Three former ICAP brokers pleaded not guilty to criminal charges for manipulating the Libor interbank benchmark rate in the UK courts in December 2014.  They are expected to stand trial in September 2015 alongside former brokers from RP Martin.

– Edited by Gary J. Malone