The European Union has fined three banking giants for participating in a cartel in euro interest rate derivatives.

The banks colluded on euro interest rate derivative pricing elements, and exchanged sensitive information, in breach of EU competition rules. Barclays, Deutsche Bank, RBS and Société Générale had already settled with the EU in respect of the same cartel in December 2013, but the present recalcitrants had refused to do so.

Interest rate derivatives are financial products such as forward rate agreements, interest rate swaps or interest rate options, which some HNW investors use to offset interest rate fluctuations or for out-and-out speculation. They derive their value from the level of a benchmark interest rate, such as the Euro Interbank Offered Rate (EURIBOR) and/or the Euro Over-Night Index Average (EONIA) for euro interest rate derivatives. The EURIBOR benchmark interest rate is meant to reflect the cost of interbank lending in euros and is based on individual quotes submitted daily by a panel of banks to a calculation agent.

The EU's investigation found that a cartel was operating between September 2005 and May 2008, involving the seven aforementioned banks over varying time periods. It covered the whole European Economic Area.

The participating traders of the banks were in regular contact through corporate chat-rooms or instant messaging services. The traders' aim was to distort the normal course of pricing components for euro interest rate derivatives. They did this by telling each other their desired or intended EURIBOR submissions and by exchanging sensitive information on their trading positions or on their trading or pricing strategies. In other words, the seven banks colluded instead of competing with each other on the euro derivatives market.

The EU's ‘Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds’ (otherwise known as the Benchmarks Regulation) became EU law on 30 June and will apply in the UK on 1 January 2018. The regulation will outlaw the manipulation of benchmarks such as EURIBOR and will reinforce the investigative and sanctioning powers of various financial regulators.