LONDON A former Barclays executive said he ordered staff to manipulate interest rates in line with instructions from his then boss, Bob Diamond, providing an account of the scandal apparently at odds with that given by the British bank's former chief executive.
Jerry del Missier, who resigned as chief operating officer two weeks ago shortly after Diamond quit, came under intense cross-examination on Monday from a parliamentary committee over whether he knew artificially lowering Barclays' rates was illegal.
Barclays was fined a record $450 million last month by U.S. and UK authorities for manipulating the London Interbank Offered Rate, or Libor, the interest rate that underpins transactions worth trillions of dollars worldwide, between 2005 and 2009.
Del Missier said he told staff to act to drive down their submissions to the daily Libor calculation following a conversation Diamond had in 2008 with the Bank of England.
Del Missier's interpretation of events appeared to differ from what Diamond told the same parliamentary committee nearly two weeks ago, when he said he had given no such instruction.
Del Missier's testimony adds to evidence of mismanagement and poor compliance at Barclays, as well as leaving in doubt who was ultimately responsible for the order to lower the bank's Libor submission. This could be significant in the law suits that Barclays and other banks now face over alleged Libor manipulation. Britain's Serious Fraud Office has also launched its own investigation into the allegations.
Diamond's former right-hand man also said that Barclays' compliance department had been informed of Diamond's order to change rates, but that no action had been taken as a result.
Barclays declined to comment on the role played by the head of compliance at the time, Stephen Morse, who left in October 2011 after eight years at the bank, or that of Mark Dearlove, who del Missier said had received the order to lower rates. Morse could not immediately be reached for comment.
Del Missier said that someone on the money markets desk had alerted the bank's compliance department to the instruction to lower rates, but he was not aware of any follow-up.
Barclays, which also declined comment on the testimony, had said earlier that del Missier's order to understate submissions made towards calculating the daily Libor rate was the result of a misunderstanding.
The deputy governor of the Bank of England, Paul Tucker, in testimony to the committee last week, said he had been concerned that Barclays was submitting rates that were high, but he had not intended that as an order to submit artificially low rates.
Del Missier said he did not see anything wrong with what he was doing.
"I passed the instruction on to the head of the money market desk. I relayed the content of the conversation I had with Mr. Diamond and fully expected the Bank of England views would be fully incorporated in the Libor submission. I expected that they would take those views into account," del Missier said.
"At the time it did not seem an inappropriate action given that this was coming from the Bank of England," he told the House of Commons Treasury Select Committee.
"I only know what I clearly recall from my conversations with Mr. Diamond. I acted on the basis of the phone conversation that I had," del Missier told the committee.
The London interbank offered rate, or Libor, which is compiled from estimates by big banks of how much they believe they have to pay to borrow from each other is used for $550 trillion of interest rate derivatives contracts and influences rates on mortgages, student loans and credit cards.
An understated estimate could allow a bank to present a better picture of its financial health.
Del Missier, who had not previously commented said his order to the head of Barclays' money markets desk in October 2008 followed a conversation with Diamond.
Diamond had told him that the Bank of England and the British government were concerned about the relatively higher rates that Barclays was submitting and wanted the bank to reduce the rate it was submitting, del Missier said.
A spokesman for Diamond declined to comment.
Adair Turner, chairman of the Financial Services Authority (FSA), in a later session, said he was "shocked" by the revelations of Libor fixing in the Barclays investigation and had asked for an internal report to find out why the watchdog did not follow up on several press reports in 2007 which raised concerns over how Libor was being set.
"Within the FSA it does not seem to have been picked up as an issue which people responded to," Turner said, adding that because Libor submission was not a formally regulated process the watchdog had overlooked it.
"There was simply a mindset that if there were problems here it was for the BBA (the British Bankers' Association) to solve. That was the assumption people were making at that time," he told the committee.
Tracey McDermott, acting director of enforcement at the FSA, said the regulator was investigating seven banks as part of its Libor probe, not all of them British.
The Bank of England confirmed on Friday it had received U.S. recommendations to overhaul Libor, and had passed them on to the BBA, the banking trade group responsible for the rate.
It also emerged that Barclays alerted U.S. regulators as far back as 2007 to concerns that banks were rigging benchmark interest rates, and policymakers on both sides of the Atlantic did not appear to take decisive action.
Turner said he and BoE Governor Mervyn King effectively forced Diamond to quit on July 3 because they did not believe he was the right person to change Barclays. The FSA chief sent it a scathing letter in April telling the bank that its "aggressive" culture needed to improve.
Barclays is the only bank so far to admit to giving false information as part of the process of setting Libor.
The conversation in October 2008 between Diamond and Tucker is central to the question of whether Barclays was told by the central bank it could submit lower Libor rates.
In an internal memo written after that conversation, Diamond said Tucker told him "it did not always need to be the case that we appeared as high as we have recently".
Diamond has since said he did not take that as an instruction to submit lower rates, but said del Missier mistakenly understood the memo as a green light to do so.
When Tucker appeared before the committee he said the memo misrepresented the conversation. The purpose of the call was to share his concerns about Barclays' funding costs rather than discuss interest rates, Tucker said.
More than a dozen banks are eventually expected to be drawn into the Libor scandal, which is being probed by authorities in North America, Europe and Japan.
Libor rates submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the British Bankers' Association.
(Additional reporting by Chris Vellacott, Steve Slater, Kate Holton, Douwe Miedema and Venetia Rainey; writing by Alexander Smith; Editing by Giles Elgood)