Question 1:

LIBOR is an acronym for the term "London InterBank Offered Rate" which was determined
privately by polling key global banks in London on the interest rate they could borrow for
various lengths of time in USD, EUR, GPB, JPY, and CHF (CRS 2022). Due to the demand
for a uniform reference rate, the British Bankers Association (BBA) released the BBAIRS
(BBA Interest Rate Settlement Rates) that eventually became the BBA LIBOR which was
announced for the first time in three currencies: USD, JPY, and GPB in January 1986 (Kyle &
Russell 2012) and had expanded to include 10 currencies with 15 different maturities for each
currency ranging from overnight to 12 months (Kyle & Russell 2012; Appendix 1). However,
although LIBOR is the most important benchmark in the financial world underpinned by over
$300 trillion in financial contracts (Nguyen & Smialek 2022), it is not the only benchmark, for
example, since the introduction of the single European currency, EURIBOR was born in 1999
and is operated by the European Banking Federation (McConnell 2013).

On February 1, 2014, the Intercontinental Exchange's Benchmark Administration (IBA) took

over management of LIBOR (BBA 2014) and changed it to LIBOR ICE following the previous
scandals of BBA LIBOR and Wheatley Review Recommendation "The BBA should transfer
responsibility for LIBOR to a new administrator, who will be responsible for compiling and
distributing the rate, as well as providing reliable internal governance and oversight" (Bajpai
2022). However, due to the LIBOR scandals that came to light in 2012 (banks cooperated to
manipulate the LIBOR rate and caused trillions of dollars in losses in the world's derivatives
and credit markets) and questions about LIBOR's validity (Fernando 2022), the Financial
Conduct Authority (FCA) in March 2021 officially announced that LIBOR which has been the
benchmark for foreign currency loans and derivatives will be discontinued after 30 June 2023
(Shinhan Bank 2021). Banks operating in Vietnam such as BIDV, VP Bank, etc have also made
similar announcements to FCA and announced the use of alternative reference rates including
SOFR (Secured Overnight Financing Rate), €STR (Euro Short-Term Rate), TONAR and JPY
TIBOR (coexist) (Appendix 2).

LIBOR before its "death" at the age of 52 is the most important benchmark in the international
financial world (Nguyen & Smialek 2022) with one of the reasons being that LIBOR has
influenced interest rate and currency swaps, student loans, mortgages, corporate debt, and other
derivatives when almost $800 trillion in financial instruments referenced this benchmark (JEC

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2012). Besides, LIBOR is exercised as the basis for variable rate loans, so if LIBOR increases
or decreases, it affects the contracts attached to it and based on it as a benchmark, for example,
an adjustable-rate mortgage may require the borrower to pay interest equal to USD 3M LIBOR
+ 0.5% (a borrowing rate of 0.5% over the current three-month LIBOR rate for USD) (JEC
2012). In addition, the influence of LIBOR extends beyond the benchmark of financial trading
to be a stress measure in the international currency markets. In other words, as LIBOR
increases, banks will become more cautious in lending to each other, leading to increased stress
in the financial market and conversely, a decrease in LIBOR indicates a relatively more stable
financial market (JEC 2012).

Question 2.
2a.
Because LIBOR was used to refer from the interest rates that businesses pay on loans to student
loans or home mortgages by individual consumers and used in derivative pricing (Fernando
2022). It is difficult to pinpoint exactly who the main stakeholders affected by the LIBOR
scandal are and how much financial loss they have damaged (JEC 2012; McConnell 2013), but
its effects can be seen (Fernando 2022). Due to the Liborgate, a series of financial contracts
were mispriced in the global financial world (Fernando 2022). Businesses and other banks that
were paying floating rates referencing LIBOR would lose money when LIBOR rates were
forced to increase by "illegal means" (McConnell 2013). Conversely, businesses and other
banks that were paying fixed rates referencing LIBOR would receive less interest when floating
rates are forced down (McConnell 2013). For example, Fannie Mae and Freddie Mac which
are two large US housing agencies have been assessed by a Federal Housing Finance Agency
(FHFA) that they had lost 3 billion dollars due to the "Liborgate" scandal and had filed a lawsuit
against only dozens of banks including BBA because of damages done by the LIBOR rate
fixers (Benson 2012).

Also, not only businesses affected, but customers as individuals with mortgage payments
referencing LIBOR rates suffered (McConnell 2013), for example, homeowners may have
fixed-rate mortgages at the time when mortgage rates were forced to raise based on the LIBOR
manipulation so each additional cost is considered a type of “theft” carried out by criminals
manipulating LIBOR (Fernando 2022). In addition, state and local municipalities, hedge funds,
and institutional investors were negatively affected by the LIBOR scandal by leading financial
institutions including the Royal Bank of Scotland (RBS), JPMorgan Chase (JPM), Citigroup

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(C), Barclays (BCS), and Deutsche Bank (DB) (JEC 2012; Fernando 2022). For example, the
City of Baltimore which used interest rate swaps to do the trajectory of revenue and expenses
to make budget forecasting simpler had filed lawsuits against banks for their losses as a result
of “unlawful conduct” (JEC 2012).

2b.

LIBOR was published daily through “contributing banks” such as Royal Bank of Scotland
(RBS), HSBC (HSBC), Bank of America (BAC), and Deutsche Bank (DBK),... submitting
quotes for 10 currencies and 15 different borrowing periods after 11 am (BST) every day
(MacKenzie 2008; Kyle & Russell 2012) to Thomson Reuters that will take all submissions
and calculate the LIBOR rate by ranking the quotes: discard the top and bottom 25% of quotes
and use the average of quotes which is called the trimmed average to announce the official
LIBOR rate for each tenor within each currency (McConnell 2013) to banks around the world
after noon London time (Abrantes-Metz et al. 2012; McConnell 2013). It is worth mentioning
that contributor banks submitted quotes to BBA based on the survey question "at what rate
could you borrow funds, were you to do so by asking for and then accepting interbank offers
in a reasonable market size just before 11 am?" - a question that is hypothetical and prone to
abuse by unethical contributors (Kyle & Russell 2012; McConnell 2013). In addition, it is
challenging to “confirm” the LIBOR submissions given from “contributor banks” are unbiased
and objective (McConnell 2013). In other words, this is an inherent weakness of LIBOR that
makes this benchmark potentially vulnerable to manipulation and that was exposed in 2012
causing conflicts of interest when Barclays - one of the “contributor banks” that were polled to
determine LIBOR rates was fined by the British regulator and settled with the U.S. Justice
Department, the CFTC, and a group of states for having manipulated LIBOR (CRS 2022).
Between 2005 and 2008, Barclays provided LIBOR submissions with three kinds of
manipulation: holding constant, overreporting, and underreporting (Fabrizi et al. 2020) that did
not accurately reflect the borrowing costs of Barclays for two reasons including profiting from
Barclays swaps based on LIBOR rates and concealing the weakness in Barclays' financial
condition at the time of the financial crisis (CRS 2022). Also, other “contributor banks” were
contributed in the scandal including the Royal Bank of Scotland (RBS), JPMorgan Chase
(JPM), Citigroup (C), Barclays (BCS), and Deutsche Bank (DB) (Fernando 2022).

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This is seen as a major stage of financial collusion as the popular benchmark in the world has
been manipulated by “contributor banks” leading to worldwide mispriced financial contracts,
lawsuits, fines, changing some regulations, and damaging public confidence in international
finance (Fernando 2022). Due to the scandal, and questions around the validity of the LIBOR
as a reliable benchmark, LIBOR is now being phased out and will be replaced by the Secured
Overnight Financing Rate (SOFR) (Fernando 2022).

2c.
There are three main sorts of “conflicts of interest” in the LIBOR process which result in
unethical behavior.
1. Structural conflicts of interest
Most of the "contributing banks" were polled to define the LIBOR rate as GSIB which are
large, systemically crucial banks that are assessed as "too big to fail” (McConnell 2013). This
dominance of major banks based in London (United Kingdom) had shown the fact that the
establishment of LIBOR was originally a UK initiative to promote London and the country as
a financial center (McConnell 2013). In addition, the banks that are most involved in
determining LIBOR interest rates are also the contributors who are most involved in trading
derivatives referencing LIBOR leading to a tendency to strengthen LIBOR's strong position in
the financial markets, for example, the G14 dealers such as Bank of America, Barclays Bank,...
are the most active derivatives traders in the international finance, together making up around
70% of the basic value of the IRS and more than 80 % of all interest rate derivatives (Sidanius
& Wetherilt 2012; Appendix 3).

Besides, monitoring and supervising the LIBOR process was done by the Foreign Exchange
and Money Market Committee (FX&MMC) of BBA LIBOR Ltd (McConnell 2013). However,
even though there is an independent LIBOR process supervisory board that can raise issues,
monitoring, and punishment are controlled by "contributor banks” (McConnell 2013). In other
words, it is the "contributor banks" that monitored and punished themselves (McConnell 2013).
Therefore, the apparent conflict of interest has arisen from the lack of transparency of the
LIBOR process in terms of supervision (or non-supervision) by FX&MMC and the Financial
Services Authority (the FSA) (McConnell 2013).

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2. Banks’conflicts of interest
Since the banks determined LIBOR each day are also those that trade the most in LIBOR-
related derivatives leading to increasing the possibility that in the lack of corroborating
transactions, the LIBOR rate may be affected by trading action. Global banks have met
numerous potential conflicts of interest: “insider trading”, and often resolve these conflicts
through internal policies known as "Chinese walls" - organizational and physical separation of
employees who may be placed in conflict situations (McConnell 2013). Due to the nature of
submitting the rate which required submitters to be experts who are close to the market in
which they are contributing the rates, however, the UK Parliamentary Committee investigated
that in fact, the use of modern media has made the "Chinese walls" ineffective because they
are not capable of blocking information about the submitter's bank position in the market, it is
challenging to take away that information from them, and several "submitters" had also taken
as “trading” role (McConnell 2013). In other words, the "submitter" banks were well aware
that conflicts of interest could happen but did not seem to take any action to alleviate these
conflicts (McConnell 2013).

3. Individuals’conflicts of interest
During the calculation of LIBOR, if collusion between submitters and traders is performed
which affects the final LIBOR interest rate, they can submit interest rates to make the most of
their existing market positions or acquire new favorable positions (McConnell 2013). For
example, a “high” rate submission, even when excluded, will push the average up, and vice
versa, a “low” rate submission will pull the average down, by an amount determined by other
sends (McConnell 2013). Such collusion between submitters and traders will be considered
unethical behavior and carry the risk of internal sanctions (McConnell 2013). While changes
to the LIBOR rate are usually in the fractional scope of basis points, the markets that use
LIBOR (especially the IRS - Interest Rate Swap (Corb 2012) have developed a lot over the last
25 years, and the contributing banks will be holding IRS positions with a "notional" value of
hundreds of billions of dollars at any given time (McConnell 2013). Therefore, even a tidy
"adjustment" in the final LIBOR rate for such huge positions can generate significant profits
resulting in a conflict of interest for the individual trader (McConnell 2013).

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Question 3:
1. Standard II(B) Market Manipulation

Standard II(B) involves “members and candidates” to maintain the integrity of the market by
forbidding market manipulation which is acts of distorting securities prices or trading volumes
with the aim of misleading people or organizations to rely on information in the market, thereby
causing damage to all investors’ interests by interrupt the smooth operations of financial
markets and lessen the confidence of investors to the market (CFA Institution 2014). However,
"contributor banks" have joined hands to manipulate LIBOR - the benchmark interest rate used
to price loans and derivatives worldwide (Fernando 2022). During the LIBOR manipulation,
contributing banks intentionally sent "artificially" high or low-interest rates to force LIBOR
higher or lower to support the trading and derivatives activities of these organizations
(Fernando 2022). This results in trillions of dollars in losses in the world's derivatives and credit
markets (Fernando 2022). For example, the Federal Deposit Insurance Corporation in 2012
filed a lawsuit on behalf of 38 banks that bankrupted during the 2008 crisis, compensating
damages for derivative contracts, and in 2015, global fines could total up to $9 billion due to
the LIBOR manipulation (Khanna 2020). After the scandal came to light in 2012, LIBOR was
discredited and will be completely discontinued after June 2023 (Fernando 2022).

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2. Standard III(A) Loyalty, Prudence, and Care

Standard III(A) requires “members and candidates” to have responsibilities to their clients
including a duty of loyalty and reasonable care as well as it is paramount to implement in the
interest of clients and to put their benefits above the interests of their own or the employer
(CFA Institution 2014). In addition, members and candidates must act with caution to avoid
harm to the client and must follow the investment parameters put by clients and balance return
and risk (CFA Institution 2014). The manipulation of LIBOR is perceived by clients as a blatant
robbery committed by unethical criminals interested only in enhancing the trading and
derivatives activities of these unethical organizations (Fernando 2022). As a result, the interests
of customers are affected and their confidence in the financial market in general, and LIBOR,
in particular, is lost (Fernando 2022). The LIBOR replacement completely due to its scandal
also had an impact on customers (Sandor 2021). For example, there are at least $1.3 trillion in
consumer loans currently referencing Libor largely as mortgages, which would change if
previously more adjustable-rate mortgages were formed to pay the Libor rate + a margin such
as Libor + 2% then when Libor discontinues these loans will have to be reset to the current
benchmark: SOFR that may cause confusion (Sandor 2021).

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3. Standard VI(A) Disclosure of Conflicts

Standard VI(A) requires “Members and Candidates” to avoid apparent or actual conflicts of
interest when they may happen between the interests of clients, employers, and individuals
(CFA Institution 2014). When operating in the investment industry, identifying and managing
these conflicts is an important action and can take numerous methods (CFA Institution 2014).
Where conflicts cannot be avoided, the clear and complete disclosure of their existence
“conflicts of interest” is required to clients assess the objectivity of investment advice or action
taken (CFA Institution 2014). For example, in the case of LIBOR manipulation, three main
types of “conflicts of interest” in the LIBOR process result in unethical behavior including
structural-level conflicts, bank-level conflicts, and individual-level conflicts but the
contributing banks have failed to convey the "conflicts of interest" to their clients resulted in
clients or investors being unable to analyze relevant information effectively and suffered heavy
losses (JEC 2012; McConnell 2013).

Question 4:
4a.
It is difficult to pinpoint exactly how much financial damages were (JEC 2012; McConnell
2013) because LIBOR was used as the benchmark or the pricing of financial instruments
(McBride 2016; Appendix 4) from the interest rates of businesses to individual consumers,
state and local municipalities, hedge funds, and institutional investors, and used in derivative
pricing (Fernando 2022). Even, more than half of US flexible-rate mortgages are associated
with LIBOR (McBride 2016). Although changes to the LIBOR rate are usually in the fractional
scope of basis points, the markets that use LIBOR have developed a lot over the last 25 years
and most of the "contributing banks" were polled to define the LIBOR rate as GSIB which are
assessed "too big to fail”, therefore, even a tidy "adjustment" in the final LIBOR rate can result

9
in conflicts of interest and the negative impacts that could happen (McConnell 2013). Also, the
contributing banks such as Bank of America, and Barclays Bank,... are the most active
derivatives traders in international finance, together making up more than 80% of all interest
rate derivatives (Sidanius & Wetherilt 2012).

Therefore, the Liborgate generated a series of mispriced financial contracts, lawsuits, and fines,
changing some regulations, and damaging public confidence in the global financial world
(Fernando 2022). In 2015, global fines could total up to $9 billion due to LIBOR manipulation
(Khanna 2020). Besides, the influence of LIBOR extends beyond the benchmark of financial
trading to be a stress measure in the international currency markets, for example, when LIBOR
increases, banks will become more cautious in lending to each other, leading to increased stress
in the financial market and conversely, a decrease in LIBOR indicates a relatively more stable
financial market (JEC 2012). Besides the LIBOR manipulation case, in the financial world,
there are also other scandals related to banks manipulating the gold and silver markets, banks
manipulating the foreign exchange market, etc. (Cohan 2017) for example, in 2012, the London
Whale scandal lost at least $6.2 billion for JPMorgan Chase & Co. after placing risky bets
using the money of depositors (Hurtado 2016). These show the unethical practices in the world
of global finance that occur when controls are absent or even failing as the LIBOR scandal
(Chenguel 2022). The FCA in March 2021 officially announced that LIBOR will be
discontinued after 30 June 2023 due to the manipulation and questions about LIBOR's validity
(Fernando 2022)

4b.
Penalties ranging from financial institutions to individuals involved in LIBOR manipulation
have taken place (McBride 2016). For example, in July 2012, Barclays Bank was fined 435
million dollars and paid an additional 100 million dollars to 44 US states in 2016 for their role
in manipulating USD Libor rates or another giant involved in the LIBOR manipulation case
UBS was hit with the largest fine related to Libor with $1.5 billion paid to global regulators
(McBride 2016). In addition, since 2015, UK and US authorities have criminally charged more
than 20 people related to the LIBOR scandal (McBride 2016). Besides, policymakers
implemented some reforms to the scandal such as moving rate publications from the BBA to
the Intercontinental Exchange's Benchmark Administration (IBA), rates regulated by the

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British financial regulator, modifying the way interest rates are calculated, and encouraging
switching away from LIBOR (CRS 2022).

However, in the first phase of the investigation, 5 merchants of Barclays were convicted and
sentenced to between 4 and 11 years in prison but the next phase of the investigation by the
United Kingdom‘s Serious Fraud Office (SFO) quietly ended with about 529 million dollars in
fines and 8 people acquitted (Jones 2019). This angered many as they had hoped that the SFO
would identify and punish bankers responsible for the scandal instead of bankers scrambling
to seek a risk-free LIBOR alternative (Jones 2019). In addition, the evidence surrounding the
LIBOR manipulation involves more senior figures than charged people when an email was
released in 2012 showing a series of contacts from the deputy governor of the Bank of England,
a senior figure in the UK Civil Service, to CEO of Barclays (Jones 2019). The close relationship
between the bankers and regulators related to the LIBOR scandal is not limited to the UK but
also to the Federal Reserve Bank of New York by email and phone between 2007 and 2008
(Jones 2019). Despite the clear evidence and reports of misconduct by senior figures, the
investigation of SFO never saw action implemented at higher levels but instead focused on
who "could be considered low-profit" (Jones 2019). Therfore, the financial industry and
regulatory agencies have handled the LIBOR scandal ineffectively (Jones 2019).

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