In May 2013 we published a blog on some of the key issues around LIBOR. We touched on the Wheatley Review’s long awaited recommendations and how the Financial Services Act 2012 (FSA) had been brought into force on 1 April 2013 to implement some of those recommendations. In particular, the FSA made it a criminal offence to manipulate LIBOR. Providing information and administering LIBOR become regulated activities, and the British Bankers Association (BBA) became regulated by the Financial Conduct Authority. One year on from the FSA, we’re taking the opportunity to ask “what’s changed?”
On 9 July 2013, it was announced that NYSE Euronext Rate Administration Ltd, would take over the administration of LIBOR from BBA LIBOR Ltd. Shortly after this announcement, it was confirmed that Intercontinental Exchange Group Inc. had acquired NYSE Euronext and that NYSE Euronext Rate Administration Ltd would be renamed ICE Benchmark Administration Limited (IBA).
On the back of this acquisition, Andre Villeneuve was appointed as chairman of the IBA, tasked with implementing a robust governance framework to restore the integrity of LIBOR. The IBA officially took over from BBA LIBOR Ltd on 1 February 2014.
The IBA website confirms that despite being appointed to this new administrative role, there will be a “continuation of what is known as BBA LIBOR and there are no changes in how the rate is calculated or how submissions are collected at present“. The LMA has published guidance opining that a court would now be likely to interpret references to BBA LIBOR as ICE LIBOR. The good news is therefore that references to BBA LIBOR in existing documentation can remain and do not need to be amended.
Although there are no current plans to change how ICE LIBOR is calculated or how submissions are collected, it should be noted that as part of the ten point reform plan published by the Wheatley Review, certain short term tenors of 4, 5, 7, 8, 10 and 11 months have been discontinued.
On the back of the discontinuation of certain tenors, the IBA has made the decision not to publish the submissions of the panel banks until three months after each submission date. The intention is that this move should prevent credit signalling between the panel banks responsible for submitting LIBOR rates. This ought to result in submissions being based on each panel bank’s perceived costs of borrowing funds in the market at the point the submission is made.
In the courts
Over the last six months, the courts have been rife with LIBOR cases. Some banks have been charged with offences of conspiracy to defraud in connection with the Serious Fraud Office’s investigation into the manipulation of LIBOR and the Financial Conduct Authority has imposed significant fines on some banks. However, all eyes are currently on two cases in particular.
The first case* concerns allegations that Barclays mis-sold interest rate swaps linked to LIBOR. Barclays appealed a first instance decision which had ruled in favour of the opposition, allowing it to amend itd pleadings to include claims relating to LIBOR manipulation. In the second case**, Deutsche Bank was allegedly manipulating LIBOR but the claimants application was unsuccessful.
On appeal it was decided that both cases would be heard together. The decision of the Court of Appeal was announced on 8 November 2013. It was decided that both claimants could amend their pleadings to include allegations that the banks made implied representations as to the efficiency or the non-manipulation of LIBOR.
It was argued by the banks that the proposed amendments should not be made because (amongst other reasons):
- the fact that the banks proposed that the finance documents should refer to LIBOR did not mean that any representation about LIBOR or the bank’s participation in LIBOR was being made;
- the documentation contained various clauses and disclaimers which prevented any assertion that there was any intention to make any representations about LIBOR; and
- if there was an allegation of fraud, this could only be an allegation of fraudulent non-disclosure, which is not recognised by English law.
It was concluded that it would be inappropriate to refuse the request to amend pleadings on the basis that there is no obligation to disclose one’s dishonesty (point three). In considering points one and two, as to whether an implied representation had been made, it was held that one must look at the specific facts of each case. However, the judge noted that the banks did propose the use of LIBOR in the suite of finance documents and at the very least were representing “their own participation in the setting of the rate was an honest one“. As such, “proposing transactions which were to be governed by LIBOR…is conduct just as much as a customer’s conduct in sitting down in a restaurant amounts to a representation that he is able to pay for his meal“.
*Graiseley Properties Ltd and others v. Barclays Bank plc
**Deutsche Bank AG and others v. Unitech Global Ltd and others