On 27th June Barclays disclosed that it had been fined a record £290m by the Financial Services Authority (FSA) for manipulating the London inter-bank offered rate (Libor). The benchmark interest rate is intended to reflect the average rate at which the large London-based international banks can borrow from each other. Barclays admitted to having sought to fix Libor between 2005 and 2009 and have been at the centre of the public storm since the scandal was revealed last month, forcing the resignation of Chief Executive Bob Diamond and Chairman Marcus Agius. To date, Barclays has been the only bank to admit any wrongdoing, however, the remaining fifteen are currently under investigation by the FSA for potential involvement in the interest rate-rigging.
Libor is a key index used to set prices on a range of financial products, from mortgages, loans and credit cards to bonds and hedges. While the Bank of England base rate has maintained a historic low, some businesses have been hit with fees or have faced penalties for cancelling the hedges or refinancing their loans to take advantage of the lower rates which have been manipulated by the banks for financial gain. Businesses have also been told that buying the interest rate swaps was a condition of taking out a loan.
The betrayal clearly has wide reaching consequences as the artificial rate has caused small and medium-sized enterprises (SMEs) to be mis-sold swaps in the run up to the financial crisis. As a result, these businesses may have incurred significant losses. Martin Wheatley, head of financial conduct of the FSA has recognised that “for many small businesses this has been a difficult and distressing experience with many people’s livelihoods affected’.
Potential claimants could be borrowers, investors, counterparties, savers, bondholders or anyone affected by a rate which was higher or lower than it may have been without the wrongful manipulation. Morgan Stanley analysts have calculated the litigation risk to each of the banks involved at between £38.5m and £70.5m; many of Britain’s largest banks having agreed to compensate SMEs that have been mis-sold swaps.
If your business has incurred a loss as a result of an artificial rate, you may have a claim for compensation. Farleys have a team of expert solicitors who specialise in interest rate swap claims. If you would like to discuss a potential claim, please do not hesitate to contact our experienced commercial litigation solicitors.
By Daniel Draper, Commercial Disputes Solicitor