Because RBS is 80 per cent owned by the British government, which bailed it out during the 2008 financial crisis, the bank plans to cut 2012 bonuses and claw back previous payouts from staffers implicated in the fraud, their managers and some other employees.
To take money from the corporation would, in effect, amount to making British citizens pay for the bank's role in the scandal.
RBS joins Barclays of the U.K. and UBS of Switzerland to have been found to have rigged the London interbank offered rate, or LIBOR. This is the rate that banks use to lend money to each other and provides the basis for trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans.
U.S. and U.K. regulators fined RBS more than $460 million for rate-rigging, with $325 million coming from the Commodity Futures Trading Commission and $137 million from the U.K.'s Financial Services Authority. A unit of RBS agreed to plead guilty in a Department of Justice investigation and accepted a penalty of $150 million.
The investigations by the three organizations uncovered wrongdoing by 21 members of RBS's staff — all of whom have either left the company or are subject to disciplinary proceedings.
"LIBOR manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom," said RBS chief executive Stephen Hester in a statement. "We will use the lessons learned from this episode as further motivation to reject and change the vestiges of that culture."
John Hourican, head of RBS's markets and international banking division, will leave the bank "in recognition of the management issues identified in relation to the settlement," RBS said. The bank said Hourican played no part in the misconduct.
Ishaq Siddiqi, a market strategist from ETX capital, said the fact that RBS is dipping into bonuses to pay its fine would act as a deterrent against future misconduct.
In its statement, the CFTC said it found that as recently as 2010 and dating back to 2006, RBS employees "made hundreds of attempts" to rig the yen and Swiss franc LIBOR, as well as making false LIBOR submissions to benefit its trading positions.
A British banking trade group sets the LIBOR every morning after about a dozen international banks submit estimates of what it costs them to borrow.
The traders and the employees who submitted the interest rate data for setting LIBOR originally sat next to each other on a desk in London "in one cozy ring," said David Meister, CFTC enforcement director. When separated in a new seating arrangement, the traders switched to instant messaging.
On its website, the CFTC provided excerpts of the instant messages.
In one case, an RBS trader asked the primary submitter, who compiles the data used for setting the LIBOR, if he would lower the trading rate for Swiss francs six months out.
The primary submitter initially refused. But after the trader offered him day-old sushi rolls, he gave in, saying, "just for u."
Britain's banking industry has been caught up in a series of scandals since the financial crisis in 2008. Several executives at another major British bank, Barclays, were forced to step down amid the Libor scandal.
Barclays' role in fiddling the rate led to a $453 million fine and the resignation of a slew of executives, including chief executive, Bob Diamond. Swiss bank UBS was fined $1.5 billion late last year for its role in the LIBOR-rigging scandal.
About a dozen other big banks, including Citigroup Inc. and JPMorgan Chase & Co. in the U.S., are under investigation for possible similar violations.
Thanks to the U.K. Financial Services Act passed last year, all the U.K. fines paid by RBS will go to good causes: Some 35 million pounds will be used to support Britain's Armed Forces community, with an additional 5 million pounds going to the Imperial War Museum.
Associated Press Writers Marcy Gordon and Pete Yost in Washington contributed to this story.