The Financial Conduct Authority (FCA) has fined Lloyds Bank plc and Bank of Scotland plc (BoS), both part of Lloyds Banking Group (LBG), £105 million for serious misconduct relating to the Special Liquidity Scheme , the Repo Rate benchmark and the London Interbank Offered Rate (LIBOR).

£70 million of the fine relates to attempts to manipulate the fees payable to the Bank of England for the firms’ participation in the SLS, a taxpayer-backed government scheme designed to support the UK’s banks during the financial crisis. The £105 million total fine is the joint third highest ever imposed by the FCA or its predecessor, the Financial Services Authority, and the seventh penalty for LIBOR-related failures.

Whilst the firms’ LIBOR-related misconduct is similar in many ways to that of other financial institutions, the manipulation of the Repo Rate benchmark in order to reduce the firms’ SLS fees is misconduct of a type that has not been seen in previous LIBOR cases, the FCA said.

Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “The firms were a significant beneficiary of financial assistance from the Bank of England through the SLS. Colluding to benefit the firms at the expense, ultimately, of the UK taxpayer was unacceptable. This falls well short of the standards the FCA and the market is entitled to expect from regulated firms.

“The abuse of the SLS is a novel feature of this case but the underlying conduct and the underlying failings – to identify, mitigate and monitor for obvious risks – are not new. If trust in financial services is to be restored then market participants need to ensure they are learning the lessons from, and avoiding the mistakes of, their peers. Our enforcement actions are an important source of information to help them do this.”

Between April 2008 and September 2009, the firms manipulated their Repo Rate submissions in order to reduce the fees payable by them to the Bank of England for participation in the taxpayer-backed SLS. The Repo Rate, a now discontinued benchmark rate, was published daily by the BBA until December 2012. Repo Rate panel banks submitted the rates, across a range of maturities, at which they were prepared to trade in the repo market.

By artificially inflating their Repo Rate submissions, the firms sought to narrow the Repo Rate-LIBOR spread and thereby reduce the fees properly payable to the Bank of England for their participation in the SLS. A total of four individuals (a manager and a trader at each firm) colluded with each other in the manipulation of the firms’ Repo Rate submissions without any oversight or challenge.

The FCA said this was an extremely serious failing, with the potential to reduce the fees due to the Bank of England from all the firms that participated in the SLS.

Lloyds Banking Group has paid the Bank of England £7.76 million in compensation for the reduction in the amount of Special Liquidity Scheme (SLS) fees received by the Bank (from all users of the SLS) as a result of manipulation by Lloyds and BoS of their submissions to the BBA GBP Repo Rate.