LIBOR rigging

The Financial Services Authority (FSA) has imposed its biggest ever fine of £160m on UBS for misconduct relating to the fixing of Libor and Euribor rates.

It said the Swiss bank’s misconduct “was extensive and widespread”. At least 2,000 requests for inappropriate submissions to Libor were documented together with an unquantifiable number of oral requests.

The fine dwarfs the £59m penalty slapped on Barclays by the FSA in June for manipulating Libor – a scandal that led to the resignation of its chief executive Bob Diamond.

The City regulator said manipulation by UBS was also discussed in internal open chat forums and group emails, 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 FSA said the routine and widespread manipulation of submissions was not detected by the bank’s compliance or by group internal audit teams, which undertook five audits of the relevant business area during the relevant period.

Even when the trading and submitting roles were split in Autumn 2009, UBS’s systems and controls did not prevent traders from camouflaging their requests as “market colour”.

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.

Tracey McDermott, FSA director of enforcement and financial crime, 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.’

‘UBS's misconduct was all the more serious because of the orchestrated attempts to manipulate the Japanese yen 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 said that between 1 January 2005 to 31 December 2010, the bank’s misconduct included collusion with interdealer brokers in co-ordinated attempts to influence Japanese Yen Libor submissions made by other panel banks.

It also found that corrupt brokerage payments were made to reward brokers for their efforts to manipulate the Libor submissions of panel banks.

Other illicit acts included 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 occurred in various locations around the world including Japan, Switzerland, the UK and the USA.