Singapore to introduce criminal penalties for rate rigging

The Monetary Authority of Singapore censured 20 banks for attempting to rig benchmark interest rates in the Singapore market, it said on Friday. It is also proposing a new regulatory framework to subject the setting of key benchmark rates to regulatory oversight and introduce specific criminal and civil sanctions for manipulation of any financial benchmarks. The authority said its year-long review revealed 133 traders in the currency market have each engaged in "several attempts to inappropriately influence the benchmarks." The 20 banks were found to have deficiencies in the governance, risk management, internal controls, and surveillance systems for their involvement in submissions for benchmarks. They include the three home-grown banks DBS, UOB and OCBC, as well as some of the world's leading banks including ING Bank, the Royal Bank of Scotland and UBS. They are each required to set aside additional statutory reserves of up to 1.2 billion Singapore dollars (960 million U.S. dollars) with the central bank at zero interest for a duration of around a year or even longer, depending on how long it will take the banks to put in place sufficient measures. This would mean an opportunity cost of millions of dollars for the banks. The Monetary Authority said it went through some 100 million documents in the review that covered key benchmark rates in the Singapore market between 2007 and 2011. The review came after the LIBOR (London Interbank Offered Rate) rate-rigging scandal involving some of the world's largest banks rocked the financial world. "There is no conclusive finding that SIBOR, SOR and FX Benchmarks were successfully manipulated," the Monetary Authority said, adding that the conduct of the traders nevertheless reflected "a lack of professional ethics." SIBOR, or Singapore Interbank Offered Rate, is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in interbank market. It is similar to the London Interbank Offered Rate (LIBOR). SOR, or Singapore Swap Offer Rate, is a benchmark for the average cost of funds used by banks for commercial lending. The Monetary Authority of Singapore was able to carry out a comprehensive review covering all the banks as the local currency market was much smaller than the markets in London. Some of the cases have been referred to the Commercial Affairs Department and the Attorney-General's Chambers, but "based on the available information and evidence, no criminal offence under current Singapore law appears to have been committed," it said. It is proposing to introduce specific criminal and civil penalties under the Securities and Futures Act for manipulation of any financial benchmarks. The Monetary Authority said that the 133 traders involved only represent "a small proportion of the trading community in Singapore." It is believed that there are more than 4,000 traders in the Singapore market. The respective banks have taken disciplinary actions against the traders involved, with about three quarters of them having resigned from or having been asked to leave their banks. Their implication in the scandal may be included in record for reference checks by potential future employers. Meanwhile, the Association of Banks in Singapore and the Singapore Foreign Exchange Markets Committee said changes will be introduced later to the way some of the benchmarks are calculated. In particular, most of them will be calculated using a traded methodology rather than the current "surveyed" methodology based on submissions made by the leading market players. As for the SIBOR, which will still have to rely on submissions, the contribution process will be made more robust, they said. The Association of Banks in Singapore is the administrator of some of the key benchmarks including SIBOR and SOR.