Financial Sector Ethics: LIBOR Scandal Analysis and Recommendations

This essay provides a comprehensive analysis of the LIBOR scandal, examining the manipulation of the London Interbank Offered Rate and its ethical implications. It explores the role of Barclays Bank in the scandal, the actions of regulatory bodies like the Financial Conduct Authority (FCA), and the application of the CII Ethical Dilemma Resolution Model to assess the ethical issues. The essay delves into the financial system of the UK and its implications on the case, discussing the non-sustainability of markets based on volatile reference rates and the inherent risks of interest rate manipulation. The analysis covers the application of ethics to processes, outcomes, and the weighing of factors, as well as recommendations for corporate managers to uphold high ethical standards in the financial sector. The essay references key documents and reports, including those from the BBC News, Council on Foreign Relations, FCA, and UK Parliament, to support its findings and conclusions. The essay concludes with recommendations for corporate managers to ensure ethical practices and mitigate future scandals.

Running head: CII ETHICAL DILEMMA RESOLUTION
CII Ethical Dilemma Resolution: LIBOR scandal and Barclay Bank
Name of the Student
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Author Note

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The LIBOR scandal refers to the manipulation of the London Interbank Offered Rate
and the subsequent reaction and investigation of it. Libor is a type of rate of interest which
big banks pay to borrow from each other, especially for short-term loans, all over the world.
The scandal was highlighted when the scams of the different bank were discovered; the
falsely inflated or deflated rate of interest in order to ensure that their traders make profit or
to prove that they were more creditworthy than they were (Waggoner 2012). The banks were
to submit the real interest rate that they were paying to borrow from other bank. Libor is the
total assessment of the condition of the financial system, for the banks would report a higher
interest rate when they felt confident about the market while a low interest rate when unsure
of it. Barclay Bank’s numerous criminal case settlements in 2012 disclosed its fraudulent and
collusive actions by the member banks that were connected to the interest rate submission,
thereby leading to the LIBOR scandal pertaining to Barclay Bank in particular (BBC News
2019).
Analysis of the role of appropriate Regulators
The Financial Conduct Authority (FCA) claims to have regulated the issues related to
LIBOR since 2013 and states that such regulations have laid down significant improvement
to LIBOR through its work along with the aid of its administrator which is the ICE
benchmark administration (IBA) and a panel of 20 banks which contributes to the benchmark
(Council on Foreign Relations 2019). The Financial Conduct Authority conducted a
reformation project for reforming the major interest rate benchmark for anchoring LIBOR
submissions and its fraudulent interest rates to the greatest possible extent to its actual or real
interest rate. This action of reformation was conducted in order to ensure the genuine interest
rate that represents the market condition. However the changes it has brought is difficult to
comprehend then the governance improvements, because the market where LIBOR seek to
conduct its business which is the market for unsecured wholesaler short term lending to banks

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was not active sufficiently (Council on Foreign Relations 2019). However LIBOR is still
sustained by the help of expert judgement through the panel banks for forming their
submissions. The Financial Conduct Authority has over the years gathered market data from
banks for ensuring a clear picture of the most active, potential and real participants that is, the
banks that are suitable for unsecured wholesale borrowings who does not indulge in collusion
and fraudulent. However this data collection is still incomplete, yet the data from ICE
benchmark authority (IBA) states that there are very few borrowing transactions from certain
large banks which receives loans or short term deposits from corporate depositors or other
banks (Wheatley 2012).
The sustainability of the LIBOR benchmark is often questioned due to the absence of
the active underlying markets (Wheatley 2012). It is often questioned that if there is no
active market then how the benchmark can measure it. Irrespective of the LIBOR scandal,
the financial conduct authority have persuaded panel banks for continuing their submission of
LIBOR for withdrawal of such panel banks would lead to weak market which would lack the
robustness as and representativeness of a healthy banking sector that it is involved with
borrowing and lending. The Financial Conduct Authority ensure that no other bank indulges
into to the manipulation of rate of interest of interbank lending and borrowing, thereby
polluting the commercial banking sector. It makes sure that no other panel Bank drops out
from the list of secured banks that is free from LIBOR scandal, for a for the dropout could
hamper the production of a genuine LIBOR interest rate in the present time (Wheatley 2012).
Financial System of UK and its implications on the case
The United Kingdom and the European legislation, although do not give power to the
Financial Conduct Authority for compelling banks to contribute to LIBOR; however, it is
recommended that the panel banks, that is the ones which are free from being marked as
collusive under the LIBOR scandal, mast follow the regulations laid down by the banking

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regulator of their respective countries of operation (Wheatley 2012). The financial system of
the UK clearly states the non-sustainability and undesirability of the markets that are based
on indefinite reference rates and are extremely volatile. The financial system of UK a also
states that there is an inherent vulnerability and chance of manipulation when the interest
rates are Bank upon judgements of particular Financial institutions rather than the real price
of short term lending-borrowing. The financial system of the UK directs its players to act by
identifying the vulnerabilities and issues of the market, thereby reducing the chances of the
traders and stakeholders to get affected by scams and scandals (The Independent 2019).
CII Ethical dilemma resolution model for assessing the ethical issues of the scenario
By the help of the CII Ethical Dilemma Resolution Model, the LIBOR scandal is being
assessed and analysed.
1. Establishment of the key information
The LIBOR scandal was highlighted when the scams of the different bank were
discovered; the falsely inflated or deflated rate of interest in order to ensure that their traders
make profit or to prove that they were more creditworthy than they were (Waggoner 2012).
The banks were to submit the real interest rate that they were paying to borrow from other
bank.
2. Application of ethics to the processes
The main reason behind the LIBOR scandal which is the manipulation of the inter-
bank interest rate for short term borrowings is said to be the intention to boost the profit of its
traders. Over the years, traders have been asking other traders for setting a preferable interest
rate of transaction in order to score profit from a particular position. Barclays being the first
to manipulate LIBOR during the economic upswing in 2005 to 2007 in order to let the traders
make profits on derivatives.

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Such collusion can be assessed by the help of the Stakeholder Theory which is an
organisational Management and business ethics theory which impacts entities like employees,
creditors, suppliers, and others. This theory is mainly applied two cases related to two social
contract theory, corporate social responsibility and market economy. LIBOR scandal is a
significant scam in the global banking history for it plays a central role in the area of global
finance. This theory puts the stakeholders at the highest priority and at the beginning of any
action, especially related to market economy (Treanor 2019). Therefore it could be stated that
this theory is appropriately applicable to the LIBOR scandal.
3. Application of ethics to the outcomes
By the help of the stakeholder theory it could be understood that the employees,
supplier, creditors and communities are the one which are impacted baby of the LIBOR
scandal, for it controlled the global economy. For example: layoffs of employees in the
corporate houses, non payments to the suppliers, creditors being deprived of getting their
lending back are some of the illustrations of the LIBOR scandal that affected global economy
(FCA 2019). To counter such adverse approach, the ethical guidance of utilitarianism is
essential in order to rectify the impacts of the scandal, as utilitarianism refers to the theory the
Jeremy Bentham who stated that the society must strive for ‘the greatest happiness of the
greatest number' and therefore the scandal and its evil effects should be mitigated
expeditiously in order to restore a stable global economy.
4. Regulations or Precedents
By the implications of the scandal it could be stated that such fraudulent and collusion
have certainly defeated the banking standards and regulations of the countries involved as
such collusion between the banks is strictly against any civilized banking sector. The
Financial Conduct Authority, formed in 2012, became the government agency having a

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centralised power of carrying out investigation along with regulating financial markets in the
UK (UK Parliament 2019).
5. Weighing of each factor
The LIBOR scandal affected the global economy tremendously and eroded public
trust in the market. Colluded interest rate broke the trust of the general public upon the major
banks all over the globe. Along with affecting the public trust, the scandal also affected the
creditors of the lending and borrowing market who had no clue about the interest rate that
was colluded among the banks (UK Parliament 2019).
6. External view
In spite of the worldwide scandal, LIBOR still holds the role of primary benchmark
for worldwide lending rates. However the efforts and initiatives of the regulatory bodies,
other financial institutions and authorities have spiked to a higher level thereby holding
financial institutions liable, in case any form of collusion is traced. There has been more
consciousness among the general public and the media who you are raising questions on the
role of the central banks especially towards the bank of England, as they have failed to
address their needful duties and instead creating problems and ethical issues in the financial
system (Council on Foreign Relations 2019).
Recommendations for Corporate Managers
The Financial Service Authority (FSA) while it was functional between 2001 to 2013
recommended that the banks should not indulge into any non regulated activities along with
having your knowledge of the application of risk and governance framework held by the
FSA, in order to have a sound banking system. The panel banks are recommended not to
breach FSA's principles for businesses which might pose a threat to the economic health of
other organisations, economic condition of the consumers or condition of the market.

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References
BBC News (2019). Timeline: Libor-fixing scandal. [online] BBC News. Available at:
https://www.bbc.com/news/business-18671255 [Accessed 1 Jul. 2019].
Council on Foreign Relations (2019). Understanding the Libor Scandal. [online] Council on
Foreign Relations. Available at: https://www.cfr.org/backgrounder/understanding-libor-
scandal [Accessed 1 Jul. 2019].
FCA (2019). The future of LIBOR. [online] FCA. Available at:
https://www.fca.org.uk/news/speeches/the-future-of-libor [Accessed 1 Jul. 2019].
The Independent (2019). FCA must act in wake of judge's criticism of failure to bring top
bankers to book for Libor scandal. [online] The Independent. Available at:
https://www.independent.co.uk/news/business/comment/fca-upper-tribunal-criticism-ubs-
libor-rigging-traders-arif-hussein-senior-managers-regime-a8410381.html [Accessed 1 Jul.
2019].
Treanor, J. (2019). Barclays bank reaches $100m US settlement over Libor rigging scandal.
[online] the Guardian. Available at:
https://www.theguardian.com/business/2016/aug/08/barclays-libor-100m-us-settlement
[Accessed 1 Jul. 2019].
UK Parliament (2019). Treasury Committee publishes LIBOR report - News from
Parliament. [online] UK Parliament. Available at:
https://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-
committee/news/treasury-committee-publishes-libor-report/ [Accessed 1 Jul. 2019].
Waggoner, J., 2012. LIBOR Scandal explained and what rate-rigging means to you.
Wheatley, M., 2012. The wheatley review of libor. Final Report.