'Today’s resolutions relate to industry-wide investigations into the setting of LIBOR rates across a range of currencies. Since such investigations began in 2010 the bank has reviewed more than 11 million documents, over 1,600 hours of audio recordings and conducted more than 100 employee interviews.
RBS has offered its full cooperation to regulators throughout. The FSA, CFTC and DOJ have acknowledged the bank's cooperation. As wrongdoing was identified, RBS acted swiftly to report improper conduct to the authorities. The majority of issues were identified by RBS’s own internal investigations.
Since becoming aware in 2011 of improper conduct in connection with rate setting, RBS management has taken action to strengthen significantly the systems and controls governing its LIBOR submissions. For example: RBS has created an independent and ring-fenced rate setting team; all relevant staff are obliged to undertake a comprehensive training programme; new preventative and detective controls have been put in place that include monitoring and statistical checking of submissions by independent personnel within RBS; and, a Rate Setting Review Board has been created to oversee the submission process.
Regulation of LIBOR continues to evolve and in September 2012 the FSA published its first assessment of the regulatory reforms required via the Wheatley review. RBS is committed to full compliance with the rate setting standards contemplated in the Wheatley review and required by the CFTC.
The Board has taken the following action to ensure full and proper accountability:
All 21 wrongdoers referred to in the regulatory findings have left the organisation or been subject to disciplinary action. Six have been dismissed for LIBOR related misconduct, including two managers. Six have been severely disciplined or are going through a disciplinary process. Eight left the organisation before disciplinary action could be taken and one was dismissed for misconduct not related to these findings. In addition to the 21, two managers with supervisory responsibilities have also left the Group.
Individuals found culpable have left the bank with no 2012 bonus and full claw-back of any outstanding past bonus awards applied. Supervisors with accountability for the business but no knowledge or involvement in the wrongdoing have received zero bonuses for 2012 and a range of claw-back from prior years depending on specific findings. Further reduction of bonus and long term incentive awards and prior year bonus claw-back will be made across RBS and particularly in the Markets division to account for the reputational damage of these events and the risk of additional outstanding legal and regulatory action.
The RBS Remuneration Committee has made full use of the tools provided by our reformed pay and bonus policies. The cumulative impact of the Board’s actions (which include present and future year bonus reductions, claw-back of prior year awards and reduction of Long Term Incentive awards) is a deduction from employee incentive pay of c£300 million, with the Markets division bearing the greatest cost.
John Hourican, Chief Executive of the Markets and International Banking division, will leave the bank. This was a difficult decision. While John had no involvement in or knowledge of the misconduct, and very notable business achievements while in office, both John and the Board felt it was right that he leave the organisation in recognition of the management issues identified in relation to this settlement and the impact on the Group’s reputation. John will leave the business after handing over his responsibilities. He will receive 12 months’ notice and his other contractual entitlements, however, he will forfeit all his unvested bonus and Long Term Incentive Plan awards that are subject to claw-back.
RBS’s Markets business has been dramatically shrunk since 2008. In aggregate, the Markets division is now some 20 per cent of RBS’s capital usage with Retail and Commercial Banking 80 per cent. Last year, an exit from the Equities and M&A Advisory business lines was announced and the Markets business will shrink further to streamline resource usage and prepare for the impacts of ring-fencing on capital and funding. In the new regulatory environment, the goal of this smaller, more efficient Markets division is to help serve the needs of the Group’s core corporate customers. This is especially important in the UK where RBS supports more businesses than any other bank.
RBS will continue to cooperate in the investigations by the FSA, CFTC and DOJ, as well as investigations by various other governmental, regulatory and competition authorities. The other authorities include the European Commission and the Japan Financial Services Agency. The settlement with the authorities outlined above will not impact the capital or liquidity status of RBSSJ, or affect RBS's continued commitment to RBSSJ or its Japanese operations.