UBS to Pay US$1.5bn in Fines for Libor Rate Manipulation

Swiss bank UBS has agreed to pay fines totalling around US$1.5bn to international regulators, following an investigation in to the alleged rigging of the London Interbank Offered Rate (Libor). UBS is the second bank to agree to a penalty to settle allegation of possible manipulation of Libor, following the total fine of US$452m imposed on Barclays in June.

The US$1.5bn fines imposed on UBS includes one from UK regulator the Financial Services Authority (FSA) of £160m, for misconduct relating to Libor and the Euro Interbank Offered Rate (Euribor), and represents the largest financial penalty ever imposed by the FSA. Other banks, such as Royal Bank of Scotland (RBS), are also in the process of negotiating similar fines and settlements.

The regulator commented that UBS’s breaches of the FSA’s requirements encompassed a number of issues, involved a significant number of employees and occurred over a period of years in a number of countries.  Between 1 January 2005 to 31 December 2010 the misconduct included:

  • UBS’s traders routinely making requests to the individuals at UBS responsible for determining its Libor and Euribor submissions to adjust their submissions to benefit the traders’ trading positions. 
  • Giving the roles of determining its Libor and Euribor submissions to traders whose positions made a profit or loss depending on the Libor/Euribor fixes. This combination of roles was a fundamental flaw in organisational structure given the inherent conflict of interest between these two roles.
  • Colluding with interdealer brokers in co-ordinated attempts to influence Japanese yen (JPY) Libor submissions made by other panel banks.  Corrupt brokerage payments were made to reward brokers for their efforts to manipulate the Libor submissions of panel banks. 
  • Colluding with individuals at other panel banks to get them to make JPY Libor submissions that benefited UBS’s trading positions.
  • Adopting Libor submissions directives whose primary purpose was to protect the bank’s reputation by avoiding negative media attention about its submissions and speculation about its creditworthiness.

The misconduct was extensive and widespread, the FSA adds.  At least 2,000 requests for inappropriate submissions were documented – an unquantifiable number of oral requests, which by their nature would not be documented, were also made. Manipulation was also discussed in internal open chat forums and group emails at UBS, and was widely known. At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions. The routine and widespread manipulation of the submissions was not detected by compliance or by group internal audit, which undertook five audits of the relevant business area during the relevant period.

“The findings we have set out in our notice today do not make for pretty reading,” said Tracey McDermott, FSA director of enforcement and financial crime. “The integrity of benchmarks such as Libor and Euribor are of fundamental importance to both UK and international financial markets.  UBS traders and managers ignored this. They manipulated UBS’s submissions in order to benefit their own positions and to protect UBS’s reputation, showing a total disregard for the millions of market participants around the world who were also affected by Libor and Euribor.

“UBS’s misconduct was all the more serious because of the orchestrated attempts to manipulate the JPY Libor submissions of other banks, as well as its own, and the collusion with interdealer brokers and other panel banks in co-ordinated efforts to manipulate the fix.”

The FSA also said that it continues to pursue a number of other “significant cross-border investigations in relation to Libor and Euribor.

UBS conceded that some of its personnel had “engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions” and that some employees had “colluded with employees at other banks and cash brokers to influence certain benchmark rates to benefit their trading positions.”

UBS added that “inappropriate directions” had been submitted that were “in part motivated by a desire to avoid unfair and negative market and media perceptions during the financial crisis.”

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