Professional & Financial Lines September 2012 Weekly bulletin

LIBOR manipulation coverage Investigations and Regulator Action The European Commission is consulting on new rules to reform interbank lending rates in the aftermath of the rate-fixing scandal. EU regulators are considering options such as forcing to provide real transaction data instead of simply estimates, and increasing the number of lenders involved in setting rates. The Commission acknowledges that whilst international investigations are still underway, wider work is required to regulate how benchmarks and indices are put together and used. The Danish Bankers Association (DBA) has ruled out the possibility that CIBOR (Copenhagen interbank offered rate) was manipulated between 2007 and 2012. Despite maintaining that there is no evidence indicating CIBOR rate-fixing, the DBA admitted there is a need for a public body which can act as rate-setting watchdog to increase confidence in the rates. The DBA’s announcement follows its investigation into rate-manipulation, which it opened in July of this year. Societe Generale reports that it continues to cooperate with regulatory investigations in the US, whilst the ’s own internal probe continues. The bank emphasises that, to date, it has not been the recipient of any allegations of involvement in the rate-fixing by any regulator. RBS is set to receive a fine reportedly in the region of £300 million for its role in the -fixing scandal. According to reports, the bank is in advanced negotiations with regulators. RBS has already fired four individual traders over the matter. RBS is understood to be one of the banks to be hit hardest by the . A group of senior central banking officials have been coordinated to investigate the LIBOR scandal, Mervyn King announced this week. The Economic Consultative Committee (ECC), an informal group that supports the Global Economy Meeting (GEM) will examine the issues raised by using reference rates in financial markets, and will provide input into the wider official debate coordinated by the Financial Stability Board. The ECC includes the Bank for International Settlements board member governors. Industry Response The Institute of Chartered Accountants in England and Wales (ICAEW) will draft guidance for auditors to allow them to provide “external assurance” on whether the setting of interbank lending rates is being conducted properly. This is one of several moves from within the industry to ensure that public confidence in benchmark rates is restored and maintained. Former (BOE) policy maker, Charles Goodhart said potential candidates for the role of BOE Governor, to replace Mervyn King, may be hampered by their involvement in the LIBOR rate-fixing scandal. The search for Mr King’s successor begins this month with a view to announcing the successful candidate at year end. BOE Deputy Governor, Paul Tucker was the frontrunner

The merged firm of Clyde & Co and Barlow Lyde & Gilbert for the role, though Mr Goodhart speculates that his properly supervise individuals on his team involved in rate- prospects of success have significantly lessened since being fixing activities. Regulatory filings revealed that at least implicated in the LIBOR scandal earlier this summer. four former traders who worked under Mr Pal in New York are currently being investigated for manipulation Fourty four per cent of global investors who responded to a of LIBOR rates. Barclays has also terminated Dong Kun quarterly Bloomberg poll expect LIBOR to be replaced within Lee, a New York derivatives trader, for “engaging in 5 years, in favour of a more regulated model. This echoes US communications involving inappropriate requests relating Treasury Secretary, Timothy Geithner’s sentiment that LIBOR to LIBOR.” rate-setting should not be in the hands of private, unregulated organisations such as the BBA. Commercial On Bloomberg’s “50 Most Influential” list, Adair Turner, Barclays new CEO, has indicated that he Chairman of the FSA, is listed for his efforts, along with intends to reduce the operations of Mervyn King, to “push Bob Diamond out of Barclays” Barclays, stating that some investment banking activities following the LIBOR scandal. will become significantly more difficult in the face of tougher regulations in the current economy. In addition to the above, please click on the link for an interesting article discussing the future of the LIBOR scandal by an industry commentator: Comment http://www.dandodiary.com/2012/09/articles/d-o- insurance/what-to-watch-now-in-the-world-of-do/ As the Barclays LIBOR scandal continues, it becomes clear that more and more investigations are underway to focus specifically on the matter of rate-fixing. In the meantime, a practical commercial point for those in the business of Barclays coverage borrowing and lending LIBOR-based loans should be to review their loan documentation now for any provisions Investigations relating to market disruption in the event that ‘LIBOR’ as a Adair Turner, chairman of the FSA, has warned new benchmark disappears in the near term. Barclays chiefs, including new Barclays Chairman, David Walker, that they must remain focused on efforts to reform Insurers are becoming increasingly concerned about the culture of the bank. This comes as HMRC reveals that a possible regulatory backlash triggered by (yet more) Barclays was the only bank involved in “highly abusive” banking industry scandals such as the recent LIBOR fallout. tax schemes, an accusation which came only two months The image of the financial services sector in the eyes of the following Bob Diamond’s departure. public has been severely damaged in recent years, almost solely driven by the banking crisis, according to a Reuters Barclays formally notified the US Financial Industry report based on comments made by Lloyd’s chief executive, Regulatory Authority at the end of August that executive Richard Ward. More leniency is called for in assessing the Ritankar Pal was discharged on 30 July for failing to systemic risks posed by insurers.

Further information Further advice should be taken before relying on the contents of this If you would like further information on any issue summary. Clyde & Co LLP accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained raised in this newsletter please contact: in this summary. James Cooper No part of this summary may be used, reproduced, stored in a retrieval E: [email protected] system or transmitted in any form or by any means, electronic, mechanical, Clyde & Co LLP photocopying, reading or otherwise without the prior permission of Clyde & Co LLP. The St Botolph Building Clyde & Co LLP is a limited liability partnership registered in England and 138 Houndsditch Wales. Authorised and regulated by the Solicitors Regulation Authority. London EC3A 7AR © Clyde & Co LLP 2012 T: +44 (0)20 7876 5000 F: +44 (0)20 7876 5111 www.clydeco.com

CC001829 - September 2012