Lloyds investigated by FCA over possible market rigging

Lloyds Banking Group is being investigated by the Financial Conduct Authority (FCA) over whether some of its traders manipulated the price of government bonds. The City regulator is looking into whether Lloyds traders tried to bolster profits by driving down prices of gilts during official auctions or inflated their prices when selling them to investors. The FCA and Lloyds have declined to comment on the reports.

The City regulator is investigating whether traders at Lloyds Banking Group manipulated the price of government bonds, in a sign that the authorities are continuing to seek out rigging of key markets.

Following a series of fines across the industry for rigging interest rates and foreign exchange markets, the Financial Conduct Authority has been asking Lloyds for information about trading in gilts.

The FCA is seeking information about whether Lloyds traders may have tried to bolster profits by driving down the prices of gilts during official auctions or inflating their price when selling them to investors, the Wall Street Journal reported.

The government continues to own nearly 10% of Lloyds following its bailout in 2008, when £20bn of taxpayers’ money was used to buy shares. The initial shareholding was 43% and the government is aiming to sell off its remaining shares in the coming months, partly through an offer to retail investors.

The FCA, which has recently been accused of going soft on the City after dropping an review into banking culture, declined to comment. Lloyds also said it would not comment on speculation.

The bank has previously been fined for manipulating markets. In June 2014, it suspended seven people after being hit with a £226m punishment from regulators in the UK and the US over Libor rigging. Its penalty included the first censure for manipulating prices to deliberately reduce the fees it paid to the Bank of England for emergency funding during the 2008 banking crisis. This involved changing so-called “repo rates”, which had the effect of cutting fees paid for a liquidity scheme.

The scale of fines to hit the industry since the 2008 crisis has been highlighted by the Bank of England governor, Mark Carney, who has cited figures showing that about $150bn (£96bn) worth of fines have been imposed on major global banks since the bailouts. These have deprived the real economy of $3tn of credit, he said. The largest fines have been for rigging foreign exchange and Libor markets.

It was not clear precisely what period of trading by Lloyds employees the FCA has been concentrating on but the WSJ said it was not part of an industry-wide investigation.

The US is also investigating manipulation of its bond market and there have been reports that had also extended to London.

Fines levied by the FCA are handed to the Treasury after the government introduced changes in response to the public outcry that followed the fines imposed on Barclays for Libor rigging in June 2012.

This was the first major fine and was followed by a wave of other penalties for market manipulation. Barclays has also been fined for failing to prevent the rigging of gold while a former Credit Suisse trader was found to have artificially ramped up the price of a £1.2bn holding in gilts.