Member Article

UBS receive largest ever fine from FSA

The FSA has fined UBS £160 million for ‘misconduct’ relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR).

LIBOR and the EURIBOR are benchmark reference rates that indicate the interest rate that banks charge when lending to each other. They are fundamental to the operation of both UK and international financial markets. They affect small businesses, large financial institutions, public authorities and the general public.

The FSA have stated that the breaches of their 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 FSA have confirmed that the misconduct was extensive and widespread. The written submissions alone totalled at least 2,000, whilst the oral requests were unquantifiable. The manipulation of the rates was widely known and openly discussed in group emails. The FSA confirmed that at least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions.

The FSA Director of Enforcement and Financial Crime, Tracey McDermott, said: “The findings we have set out in our notice today do not make for pretty reading. 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 coordinated efforts to manipulate the fix.“

“Over an extended period UBS allowed this to happen through its failure to control its business appropriately to ensure that LIBOR and EURIBOR submissions properly reflected the relevant requirements. There should be no doubt about how seriously the FSA views these failings. This is our largest penalty to date and demonstrates our commitment to ensuring that those in the wholesale markets do not put their own interests above those of the markets as a whole.”

Andrew Swan, Head of Financial Crime at Newcastle-based law firm Short Richardson & Forth LLP commented: “Whilst I applaud the FSA for imposing their largest ever fine under the Settlement Discount Scheme, I do question whether criminal sanctions will flow from their investigations. There is clearly evidence of some very serious criminal misconduct, which the public would expect to be properly dealt with. I represent a lot of smaller businesses through the criminal courts, who will wonder why the prosecuting authorities did not allow them to buy their way out of trouble.”

This was posted in Bdaily's Members' News section by Andrew Swan .