Société Générale (SocGen) has agreed to pay $475 million to settle US regulators’ allegations that it tried to manipulate key benchmark interest rates.
The French bank reached the agreement with the Commodity Futures Trading Commission (CFTC) without admitting or denying wrongdoing.
Specifically, the CFTC alleges in a regulatory order that from 2006 through mid-2012 SocGen – by and through its traders and management – attempted to manipulate, and made false, misleading or knowingly inaccurate reports of market information in connection with the London interbank offered rate (Libor) for the US dollar, the yen and the euro and the euro interbank offered rate (Euribor). In certain instances, the CFTC says, SocGen successfully manipulated Libor for yen.
The agency in the filing describes these alleged actions as having ‘undermined the integrity of these critical, global benchmark interest rates and the integrity of the US and global financial markets.’ Libor and Euribor form the basis for the pricing of trillions of dollars of financial instruments, including US-based, exchange-traded futures contracts and swaps transactions.
From May 2010 through mid-2012, during a period of market strain due to the Greek sovereign debt crisis to which SocGen had exposure, the bank engaged in a scheme to protect its reputation from speculation that it was having more difficulty borrowing unsecured funds than other banks, according to the CFTC.
In or around early 2011, as scrutiny of Libor submissions by banks that set the benchmark intensified and SocGen’s fear of exposure grew, the French bank implemented a plan to gradually raise its US dollar Libor submissions to better reflect its cost of borrowing funds without prompting market reaction, the CFTC alleges.
SocGen’s submissions continued to be below its borrowing costs into the spring of 2011, but as media and regulators’ focus on the Libor submissions practices of panel banks intensified, SocGen began to submit mostly near or above its borrowing costs, according to the complaint. By mid-summer of that year, however, the bank again began to improperly depress its submissions, the CFTC adds.
Throughout this period, the agency alleges, SocGen initiated steps to conceal its misconduct, including considering providing fictitious borrowing costs data to the Libor administrator to justify its submissions. At times, employees at the firm ‘joked about going to jail because of the bank’s specious Libor submissions,’ the CFTC says.
A lack of internal controls, procedures and policies at the bank concerning its Libor and Euribor submission processes and its failure to adequately supervise its money market and derivatives trading desks and traders allowed the alleged misconduct to occur, according to the regulator.
‘[SocGen’s] failure to provide internal training or implement standards around its Libor and Euribor submissions, to prohibit inappropriate communications between traders and submitters, and to recognize and monitor obvious conflicts of interest, all led to a culture of misconduct and permitted such misconduct to continue for a number of years,’ the CFTC says in the filing.
SETTLEMENT AND COMMENT
As part of the settlement, the bank agrees to undertake an extensive list of actions to ensure the integrity and reliability of its benchmark interest rate submissions and to implement effective methodologies and processes of setting benchmark interest rates.
Among other things, it commits to:
- Implementing internal controls and procedures to prevent improper communications with submitters and supervisors regarding submissions
- Having monitoring systems or electronic exception-reporting systems that identify possible improper or unsubstantiated submissions
- Conduct internal audits of reasonable, random samples of its submissions.
In agreeing to the settlement, the commission states that it recognizes ‘the significant co-operation [SocGen] provided to the division of enforcement in its investigation of this matter, including identifying and disclosing additional specific misconduct in responding to the division’s requests for documents and information.’
The bank has also entered into a three-year deferred prosecution agreement with the US Department of Justice (DoJ) that includes related allegations.
SocGen CEO Frédéric Oudéa says in a statement on the CFTC and DoJ agreements: ‘We regret these past misconducts, which are contrary to our values and ethical standards, that led to these settlements. We are pleased to have resolved these matters in co-operation with the relevant authorities and we believe it is an important step for the bank.
‘Over the past years, we have already taken extensive steps, at our own initiative, to strengthen our global compliance and control framework to meet the highest standards of compliance and ethics… [SocGen’s] teams are fully committed to delivering on all the key objectives of the plan and act every day to serve our clients and deserve the trust of all our stakeholders.’
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
