LIBOR manipulation: operational risks resulting from brokers' misbehavior

Patrick McConnell*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


Brokers perform a key role in many financial markets. They introduce buyers to sellers, perform a useful role in price-discovery and provide a source of market information and commentary to market participants and the general public. In well-organized markets, brokers are trusted to be honest and to undertake these tasks in the best interests of their clients (buyers or sellers). But there is an inherent and well-understood conflict of interest in the role of the broker. Brokers are rewarded by their success in bringing buyers and sellers together, but their source of income is based solely on the completion of a successful transaction. Hence, there is a constant temptation for a broker to trade the best interests of their client for a completed deal. This paper examines the key role of brokers in the LIBOR manipulation scandal and using reports from published inquiries identifies the illicit activities of some brokers in assisting banks to manipulate the LIBOR benchmark. The perpetrators of these “white collar” crimes were traders and managers in some of the largest banks in the world but the manipulation would not have been as widespread or as successful without the willing participation and illegal actions of brokers in several firms. The paper argues that the actions of the traders in various banks around the world in the LIBOR manipulation scandal are examples of systemic operational risk, and in particular people risk. The paper makes specific suggestions to bank boards and regulators as to how such misconduct may be managed in future.

Original languageEnglish
Pages (from-to)77-102
Number of pages26
JournalJournal of Operational Risk
Issue number1
Publication statusPublished - 1 Mar 2014


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