FSA exposes UBS’ fraud in benchmark interest rate rigging scandal

UBS has been slapped with a £940m fine by regulators to settle charges levied against the Swiss bank in connection with the libor-rigging scandal. The fine is the second biggest penalty paid by a bank, after HSBC’s £1.2bn money laundering settlement.

The fine levied on UBS is also three times more than that of Barclays, which paid £290m in total for attempting to rig Libor rate. UBS’ penalty of £940m is inclusive of a £160m payment to the Financial Services Authority (FSA), the largest penalty ever levied by the British watchdog, and $1.2bn (£730m) paid to US authorities.

The FSA exposed UBS’ attempts of manipulating two benchmark interest rates – London interbank offered rate (Libor) and the Euro interbank offered rate (Euribor). At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions, which were potentially suspicious in nature, the FSA said.

The regulator revealed that UBS had directed interdealer brokers to influence submissions to the yen Libor rate for five years. These brokers were paid a bribe of £15,000 a quarter for their efforts to manipulate the Libor submissions of other banks on the panel submitting rates to Libor.

The FSA report also disclosed details of a UBS trader who attempted to manipulate the Libor submissions in small parts so as to avoid arousing suspicion. The trader clearly wanted to make profits out of the manipulation.

The trader referred explicitly to his UBS trading positions and the impact of the Japanese Libor rate on those positions, the FSA report revealed. He entered into illegal transactions offering to “return the favour” to his counterparts, which saw him earning rewards and incentives. Striking a deal with the counterparts eventually led the broker to make more than £170,000 illicit fees.