Welcome to Renting Rubin, the series that examines the corporate homes which once borrowed Daniel Rubin.
Rubin’s Horsfield Menzies profile says he spent time on secondment at Barclays, BT and AstraZeneca. It does not reveal when he joined Barclays, how long he stayed or what work he performed. Therefore, this article does not allege that Rubin participated in, advised upon or knew about any misconduct discussed below.
His secondment opens the door. Barclays’ regulatory history supplies the skeletons.
The premise is simple. If a company once decided that Daniel Rubin was the rented expertise it needed, we are entitled to inspect the cupboards. At Barclays, we found the cupboards had cupboards. Some contained rigged benchmarks. Others contained customer interests waiting quietly to be identified after the trading desk had finished making money from them.
This first excavation concerns Barclays market manipulation and control failures involving LIBOR, gold and foreign exchange.
LIBOR With Compliments From The Kitchen
LIBOR was not an obscure number gathering dust in the basement of international finance. Instead, it affected loans, mortgages, derivatives and payments across the global economy.
That importance apparently did little to spoil the atmosphere at Barclays.
In June 2012, the Financial Services Authority fined Barclays £59.5 million for misconduct involving LIBOR and EURIBOR submissions. Without its early settlement discount, the penalty would have been £85 million.
The regulator found that Barclays traders requested submissions designed to benefit trading positions. Submitters regularly accommodated them. Moreover, the requests were not presented like coded messages passed between terrified conspirators. They arrived with the breezy familiarity of colleagues ordering lunch.
Favours, Coffee And Compliance
One submitter replied: “Done…for you big boy.”
Another trader promised coffee as thanks for previous assistance. Elsewhere, a submitter observed that a requested rate differed from the figure he would otherwise have submitted. Consequently, the machinery of international finance had been reduced to a favour between mates, with trillions resting underneath and refreshments apparently available.
The regulator analysed 111 trader requests concerning US dollar LIBOR. Barclays’ submissions matched those requests on around 70 per cent of the occasions examined. For EURIBOR, meanwhile, the corresponding figure was 86 per cent.
This was not one rogue employee finding an unattended lever. The FSA identified inadequate controls, routine requests and compliance failures. Concerns reached Barclays’ compliance function three times during 2007 and 2008. However, according to the regulator, those concerns were not assessed and addressed effectively.
Barclays also lowered submissions during the financial crisis because senior management worried that higher figures might attract negative media attention. The rate was supposed to indicate borrowing conditions. Barclays treated it as a reputational lighting rig.
Reality was not improved. It was merely repositioned for the cameras.
One Day Later, Gold
The FSA published its LIBOR final notice on 27 June 2012.
The following day, a Barclays trader manipulated the gold fixing.
There are institutions capable of learning a lesson. Then there is Barclays, apparently capable of receiving a £59.5 million lesson and using the next morning to locate another benchmark.
The gold transaction involved a digital options contract. If the gold price fixed above a specified barrier, Barclays would owe its customer approximately $3.9 million. If it remained below that barrier, the customer received nothing.
The trader responsible for managing the exposure described it as his “main event”. He wanted a drop in the gold price before the fixing.
During the fixing, he placed a large sell order, withdrew it and later placed another. The FCA found that these orders were intended to increase the likelihood of gold fixing below the contractual barrier.
It worked.
Gold fixed at $1,558.50, just below the $1,558.96 threshold. As a result, Barclays avoided the $3.9 million payment. The trader’s book made $1.75 million, excluding hedging.
Controls That Arrived After The Fix
The customer asked questions. Barclays investigated, reported the conduct and ultimately paid the customer what it would have received. Those facts deserve inclusion.
So does another fact.
Barclays lacked adequate policies, training and monitoring systems for its participation in the gold fixing. Until February 2013, its systems did not formally record orders placed during the fixing. Furthermore, until March 2013, they could not distinguish fixing transactions from ordinary gold spot trades.
The FCA did not conclude that Barclays, as a firm, had engaged in deliberate or reckless misconduct in the gold matter. That distinction matters.
Nevertheless, it is not much of an exoneration.
Barclays was a large, sophisticated bank participating in a benchmark while selling products whose payouts depended on that same benchmark. Yet it had failed to build controls capable of managing the screamingly obvious conflict.
The regulator said Barclays’ LIBOR investigation should have prompted a review of other price-setting mechanisms before the gold incident occurred. Instead, the warning travelled through the institution with all the urgency of a birthday card circulating for signatures.
Barclays received the LIBOR notice on Wednesday. On Thursday, a trader moved gold in the bank’s interests and against its customer.
That is not unfortunate timing. It is corporate satire with a regulatory case number.
Foreign Exchange And The Root That Would Not Die
After LIBOR came reform. After gold came more reform. There were programmes, controls, values and the usual expensive corporate vocabulary deployed whenever the previous vocabulary has been caught fiddling a benchmark.
Then came foreign exchange.
In May 2015, the FCA fined Barclays £284.4 million for failing to control its London foreign exchange business between January 2008 and October 2013. Without the settlement discount, the penalty would have been more than £355 million.
The regulator found that traders could place Barclays’ interests ahead of clients, other market participants and the wider financial system. It identified attempted manipulation of foreign exchange fix rates, efforts to trigger client stop-loss orders and the sharing of confidential client information.
Traders formed tightly controlled chat groups. In one, participants called themselves “the 3 musketeers” and declared that they would all die together.
They did not die together. Compliance arrived several years later and sent an invoice.
The chat rooms allowed traders at different firms to exchange information about client orders. In turn, that knowledge helped them coordinate trading strategies and attempt to move benchmark rates in their preferred direction.
Clients supplied the orders. Traders supplied the ammunition. Barclays supplied an environment in which the distinction between serving a customer and hunting one became distressingly negotiable.
The Remediation Ceremony
Most damagingly, the FCA connected this failure to what had already happened. Barclays had launched an extensive remediation programme after LIBOR and had enhanced controls following the gold scandal. Nevertheless, the regulator concluded that its foreign exchange work had not adequately addressed the root causes.
There is the real story.
Not three unrelated incidents. Not three regrettable employees discovering three unusually accessible cookie jars. Instead, the same institutional appetite kept appearing beside different markets, wearing a fresh compliance lanyard.
Renting Rubin And The Barclays Question
Again, no public evidence reviewed for this article connects Daniel Rubin’s secondment to LIBOR, gold fixing or foreign exchange misconduct.
That is not the claim.
Renting Rubin asks what kind of institution once selected him for an internal assignment. Barclays answers with its own record: manipulated submissions, inadequate controls, unmanaged conflicts and traders placing the bank ahead of its customers.
Perhaps Rubin’s secondment concerned something utterly harmless. Perhaps he spent every working hour rescuing stationery from a restructuring programme. His present biography does not say.
However, the absence of a direct connection does not make Barclays less worthy of examination. It simply prevents us from pretending to know which room Rubin occupied while the building developed its impressive collection of regulatory notices.
The Pattern Beneath The Penalties
Barclays was fined. Barclays promised change. Another market produced another scandal. More controls followed. Then the regulator found that the root causes had survived.
That is the pattern.
The bank did not merely suffer several ethical accidents. Rather, it repeatedly created conditions in which commercial self-interest could outrun clients, controls and market integrity. Each discovery produced a new ceremony of remediation. Somehow, the corpse kept sitting up before the undertaker had finished the paperwork.
This is only the first Barclays instalment.
There are more cupboards to open.
Lee Thompson, Founder – The Cummins Accountability Project