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UBS reaches $1.5bn settlement with international regulators over LIBOR

UBS, the Swiss-headquartered investment bank, has become the second firm to settle with international regulators over manipulation of the London Interbank Offered Rate (LIBOR) and related benchmarks.19 Dec 2012

The fine includes a payment of £160 million to the UK's Financial Services Authority (FSA), in what is the largest fine ever imposed by the regulator. UBS will also surrender 59m Swiss francs worth of profit to the Swiss regulator, FINMA, and pay $1.2m to the US Department of Justice (DoJ) and Commodity Futures Trading Commission (CFTC).

The bank will also plead guilty to one count of wire fraud relating to the manipulation of certain benchmark rates, including Yen LIBOR, as part of its settlement agreement with US regulators, it has announced.

Sergio Ermotti, chief executive of UBS, said that the bank had cooperated with the regulators throughout their investigations.

"During the course of these investigations, we discovered behaviour of certain employees that is unacceptable," he said. "Their misconduct does not reflect the values of UBS nor the high ethical standards to which we hold every employee. We have cooperated fully with the authorities and taken decisive and appropriate actions to correct the issues and to strengthen our control processes and procedures."

Publishing its final decision (40-page / 435KB PDF) against the bank, the FSA said its fine related to "extensive and widespread" misconduct by a "significant number" of employees over a six-year period. Offences included regular requests by UBS traders for the bank to adjust its LIBOR submissions and those relating to its euro equivalent, EURIBOR, for the benefit of those traders, collusion individuals at unnamed other banks and collusion with interdealer brokers, which included the making of corrupt brokerage payments.

According to the FSA, at least 2,000 requests for inappropriate LIBOR submissions were documented while an unquantifiable number of undocumented oral requests were also made. Manipulation of LIBOR submissions was "widely known", discussed in internal open chat forums and group emails and involved at least 45 traders, managers and senior managers, the regulator said. None of this behaviour was picked up during five separate internal audits over the relevant period, it said.

"Given the widespread and routine nature of the requests to change LIBOR and EURIBOR and the nature of the control failures, the FSA found that every LIBOR and EURIBOR submission, in currencies and tenors in which UBS traded during the relevant period, was at risk of having been improperly influenced to benefit derivatives trading positions," the FSA said in its notice.

FSA enforcement director Tracey McDermott said that the FSA was continuing to pursue "a number of other significant cross-border investigations" in relation to LIBOR and EURIBOR.

"The integrity of benchmarks such as LIBOR and EURIBOR are of fundamental importance to both UK and international financial markets," she said. "UBS traders and managers ignored this. They manipulated UBS' submissions in order to benefit their own positions and to protect UBS' reputation, showing a total disregard for the millions of market participants around the world who were also affected by LIBOR and EURIBOR."

The offences were "all the more serious" because of the traders' "orchestrated attempts" to manipulate the submissions of banks other than their own in relation to Japanese Yen (JPY) LIBOR, she said.

LIBOR is a daily reference rate based on the interest rates at which banks can borrow unsecured funds from other banks. It is widely used internationally as the pricing basis for some $550 trillion worth of financial instruments including interest rates and currency hedging instruments, and to set the interest rate for syndicated loans.

UBS is the second bank to settle with regulators over misconduct in relation to LIBOR submissions. On 27 June, Barclays announced that it was to pay total penalties worth £290 million to regulators in the UK and US.

Last week the Serious Fraud Office (SFO) made three arrests in relation to its investigations of alleged manipulation of LIBOR. It is proceeding under existing fraud and false accounting laws, as there is not yet a specific criminal offence in relation to LIBOR.

In his independent review of LIBOR, commissioned by the Government in July, the FSA's Martin Wheatley recommended that administering and contributing to LIBOR should become regulated activities, while criminal sanctions should be introduced for "misleading statements" in relation to the benchmark. The Government later accepted Wheatley's recommendations in full.