Singapore censures interest rate manipulators – Do the penalties go far enough in preventing future occurrence?

In a news article published on June 14, 2013, it was reported that the local central banking authority, the Monetary Authority of Singapore (MAS) has meted out harsh penalties against approximately 20 banks and financial institutions, along with their 133 traders who were found to have manipulated the Singapore Interbank offered rate (SIBOR), which sets the official benchmark for swap offered rates, mortgage rates, business loan rates etc. for the city state. MAS has also stated that it will be acting firmly against financial institutions that threaten to tarnish the integrity of the financial system in Singapore, and will not rule out any criminal charges against individuals and firms found manipulating the interest rates in the country.

In the June 14, 2013 statement by MAS, it ruled that 20 financial institutions, including ING Groep NV (INGA), Royal Bank of Scotland Plc (RBS) and UBS AG (USSN) were being reprimanded, and nineteen of the named firms were ordered to post reserves (non-interest bearing) ranging from approximately SGD 100.0 million to SGD 1.2 billion – depending on the severity of the attempts taken by traders to manipulate the SIBOR rates for one year. All except German bank, Commerzbank (CBK) was exempted from setting aside any money. Most of the banks, including the three local banks (DBS Bank, United Overseas Bank (UOB), and Overseas Chinese Banking Corporation (OCBC)) have since taken steps by issuing reprimand notices to their respective traders. MAS has also mentioned that traders who are still employed will be subjected to disciplinary action.

The latest set of measures have been in the works since a 11-month comprehensive review was being launched by the regulators, namely the Monetary Authority of Singapore, together with the Association of Banks in Singapore (ABS) to probe into the existence of SIBOR manipulation in the city state. It was mentioned in the June 14 Bloomberg News article that during the review of benchmarks set from 2007 to 2011, the Central Bank’s officials combed through approximately 100 million over documents, ranging from text messages, to official documents that have passed compliance, etc., but at the end, MAS did not make any specific allegations against individual firms or produce evidence supporting the findings.

Critics have pointed out the lack of severe harsh penalties being meted out by the regulators when the verdict was only a reprimand, and no criminal offences are being meted out against individual firms, and traders. This is unlike the LIBOR scandal that took place in the United Kingdom involving RBS, and Barclays Plc. in 2012 where harsh penalties, including sanctions were being handed down to executives and traders who were found guilty of the offences committed during their supervisory and trading activities. The critics argue that similar penalties, including those harsher ones, should be applied to the named firms, and individuals. However, if one were to look at the conclusions provided in the June 14, 2013 official statement, some find the measures outlined have covered most of the punishment and the levels of sanctioning are quite harsh, namely the posting of non-interest bearing guarantees against potential future manipulation, and individual firms have taken steps to institute controls and structures that will help alleviate the possibility of such issues cropping up. Traders are also being reminded that they are being closely monitored for any suspicious trading activities that force the SIBOR rates to change drastically and most often times in favour of the issuer, investment bank, traders, etc.

As for future reforms to the rate setting policies, MAS has also announced that it will be among the first countries to start using market trading data, rather than the survey of estimates in calculating benchmark rates. In the latest set of reforms, one of which is related to the use SIBOR will continue to remain in its calculation methodology, while the new method will also apply to four of the current 11 rates being set in the city state, while another four will be discontinued, and two will be replaced by benchmarks tied to other markets.

In conclusion, the local Monetary Authority of Singapore (MAS) has responded and did not mete out any harsh penalties against firms, except disciplinary actions to be taken by individual banks on traders, capital to be put aside with the MAS for future disgorgement of profits should another incident did arise. The steps that MAS has taken, I believe, are one of responding to the trends taking place, especially with the strengthening the checks and balances that banks have set up to root out any interest rate manipulations.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc