Probe into Hibor manipulation widens in Hong Kong

Zach Coleman and Kevin McCoy | USA TODAY

HONG KONG — Hong Kong has widened an investigation into possible manipulation of the city's benchmark inter-bank lending rate that initially targeted only Swiss banking giant UBS AG.

The Hong Kong Monetary Authority has "commenced follow-up actions on a number of banks to ascertain whether there have been any inappropriate market conducts in their benchmark rate submissions," the authority said Monday.

The monetary authority did not identify the banks added to its probe of submissions for Hibor, the Hong Kong Interbank Offered Rate.

Twenty banks designated by the Hong Kong Association of Banks set the benchmark currency rates, which are used to settle a broad range of contracts. As of September, Hong Kong's banking sector held over HK$2 trillion on balance sheet contracts that referenced Hibor, according to the Treasury Markets Association, a Hong Kong organization that recommends the banks that submit rates for the benchmarks.

The current group of banks includes major Asia financial institutions such as Bank of China (Hong Kong), the Hong Kong and Shanghai Banking Corporation, as well as U.S.-based banks JPMorgan Chase and Citibank and other global banks, including BNP Paribas and the Bank of Tokyo-Mitsubishi.

A November report issued by the Treasury Markets Association said the organization's back-testing of Hibor rates before, during and after the global financial crisis found no suspicious results.

"The Hibor fixing mechanism remains basically sound," the report concluded, adding that there was "no need to change the current definition of Hibor or replace it with (an) alternative benchmark."

However, the report recommended that participating banks be given "clear guidance" on rate-submission protocols and enhanced independence and governance of the Hibor compilation process.

The Hong Kong Monetary Authority in February accepted the recommendations, along with changes proposed by the Hon Kong Association of Banks. The monetary authority said administration of the Hibor fixing process should be transferred to the Treasury Markets Authority within six months. Other changes ordered included a comprehensive code of conduct for bank administrators involved in setting Hibor rates.

The monetary authority, Hong Kong's central bank, had announced a Hibor-related investigation of UBS in December. The probe began just after UBS agreed to pay $1.5 billion to U.S., British and Swiss regulators to settle charges regarding the manipulation of Libor, the London Interbank Offered Rate used as benchmark for loans around the world, including many U.S. mortgages.

UBS previously admitted to the manipulation of Euribor and Tibor, inter-bank rates set in Brussels and Tokyo.

Arthur Yuen, the monetary authority's deputy chief executive for banking, told legislators in April that the ongoing investigation "involved inspection of voluminous internal correspondences among the traders of the bank in order to ascertain whether there had been irregularities and manipulation of the Hibor."

Legislator Dennis Kwok told USA TODAY on Monday that "the HKMA are very much behind other regulatory authorities and central banks around the world. I'm quite disappointed with the speed of this investigation."

News of the broader Hong Kong investigation came three days after the Monetary Authority of Singapore said 133 traders at 20 global banks had attempted to manipulate foreign exchange and interest rate benchmarks there.

The authority, Singapore's central bank, said an investigation found the traders showed "a lack of professional ethics." But the central bank said there was no evidence of any offenses that would be criminal offenses under Singapore laws.

The banks cited included UBS, Royal Bank of Scotland, Bank of America, Citibank, JPMorgan Chase and Dutch bank ING.

HSBC Holdings PLC, the dominant commercial bank in Hong Kong, disclosed a year ago that it was involved in inter-bank rate probes in several countries.

Separately, authorities in the U.S. and U.K. are preparing to bring criminal charges against former employees of London-based Barclays PLC over Libor rate manipulation, according to reports published by The Wall Street Journal and other media outlets.

Barclays, UBS and RBS have paid a total of about $2.5 billion in fines over the past year regarding Libor manipulation. Bob Diamond resigned as chief executive of Barclays as result of the scandal.

McCoy reported from New York