(Adds details on RP Martin ownership)
By Kirstin Ridley
LONDON, May 15 (Reuters) - RP Martin was fined $2.3 million by British and U.S. regulators over allegations its traders manipulated benchmark interest rates, a penalty reduced by two thirds because the small UK brokerage was unable to pay the full amount.
U.S. and European authorities have to date fined 10 banks and brokerages around $6.0 billion to settle allegations they rigged the London interbank offered rate (Libor) and its euro cousin Euribor and prosecutors have charged 16 men with fraud-related offences.
RP Martin, also known as Martins, is paying 630,000 pounds to the UK regulator and $1.2 million to a U.S. watchdog to settle claims its brokers helped rig Libor, used to price roughly $450 trillion of financial products from loans to derivatives worldwide.
The Financial Conduct Authority (FCA) said it would have fined RP Martin 3.6 million pounds, but the brokerage had been unable to pay that sum on top of other Libor-related fines.
The FCA, unlike some of its regulatory peers, reduces fines in cases of financial hardship. This is the first time it has used that power in the Libor scandal.
“The culture at Martins was that profit came first,” Tracey McDermott, head of enforcement and financial crime at the FCA, said on Thursday.
“Compliance was seen as a hindrance... In this environment, broker misconduct was almost inevitable. Similar cultural failings at other firms have caused havoc in the financial services industry.”
RP Martin, which has already been fined 200,000 euros by the European Commission for allegedly participating in illegal Libor-related cartels, was the first brokerage to see staff arrested in Dec. 2012 and later charged in the investigation. It suspended its chief executive and a director in May 2013.
The brokerage said it accepted the fines.
“Over the last 12 months the board comprehensively restructured the firm’s governance, systems and controls, and compliance procedures,” it said.
One source familiar with the situation said private equity group Gresham, which had held a significant stake in RP Martin, had transferred its holding to Stephen Welch, the new head of the business a few months ago and that Welch is now the majority owner. Neither Welch nor RP Martin returned calls for a comment.
Interdealer brokers have become a focus for the inquiry because of the role they play in matching buyers and sellers of bonds, currencies and swaps, for which they charge a fee.
It is the second penalty slapped onto an interdealer broker since market leader ICAP was fined $87 million last Sept. over allegations it also manipulated yen Libor. That brokerage remains under investigation by the European Commission and prosecutors have charged three of its brokers with fraud-related offences.
Regulators said that between January 2007 and December 2010, RP Martin brokers colluded with a trader at UBS as part of a co-ordinated attempt to influence yen-denominated Libor. They provided a conduit for misinformation, created false or “spoof” orders and were rewarded with so-called “wash trades”.
Such a trade - when a trading firm buys and sells the same contract - has no legitimate commercial purpose, but generates a commission.
According to the U.S. Commodity Futures and Trading Commission (CFTC), the unnamed UBS trader asked RP Martin as far back as 2006 to assign him a junior yen broker “whom he could mould into the type of broker he wanted”.
The FCA said UBS made at least 600 requests to RP Martin over the period, which brokers accommodated when a large trade was involved or when they wanted to boost their commissions.
Several brokers and other individuals spanning two desks, including three managers, had been part of the scheme that laid bare RP Martin’s inadequate management systems, controls and oversight, the FCA said.
UBS was fined a record $1.5 billion to settle its Libor case with global authorities in 2012. ($1 = 0.5960 British Pounds) (Additional reporting by Aruna Viswanatha and Susan Heavey in Washington, editing by Alexander Smith and Erica Billingham)