UBS will pay around 1.4 billion Swiss francs (Rs 8,400 crore) in fines to British, the US and Swiss authorities to settle allegations that it attempted to manipulate key benchmark interest rates, becoming the second bank after Barclays to do so.

The penalty, which includes $1.2 billion (Rs 8,100 crore) to the US Department of Justice and the Commodity Futures Trading Commission, and £160 million (Rs 1,400 crore) by Britain’s Financial Services Authority (the largest fine this body has ever issued) dwarfs the $450 million that Barclays agreed to pay to the US and the UK regulators earlier this year. As part of the agreement, the bank’s Japanese securities division will plead guilty to one count of fraud.

As was the case with Barclays, authorities pointed to two types of manipulation of Libor and Euribor — attempts by its own employees to benefit the bank’s own trading positions and attempts to manipulate the benchmark rates to enhance public perception of the creditworthiness of the bank, over a period between 2005 and 2010. Much of the manipulation was centred round the bank’s submissions on the Japanese Yen LIBOR rate. The FSA documented 800 instances in which traders made requests to submitters to adjust their submissions in order to benefit their trading positions. As was the case with Barclays, regulators also pointed to collusion with employees at other banks, though for the first time, it noted the role of inter-dealer brokers, who colluded with the bank’s in-house traders in the attempts at manipulation.

The FSA’s final notice to UBS provides a startling glimpse of some of the deals struck, including one instance in 2008 where a UBS trader pledged to do “one humongous deal” (he suggests $50,000 or $100,000) to a broker, in return for keeping the six-month Japanese Libor rate as low as possible. “Superman,” “the three musketeers”, and “captain caos” were among the names that the traders and brokers gave each other, pointing to a “total disregard” for proper standards, the FSA said. It pointed to “corrupt payments” made to brokers over a period of a year and a half.

Around 40 people, including several managers, were actively involved in the attempts at manipulation, while several including senior managers were aware of the attempts at manipulation. The problem was exacerbated by the bank’s own “inadequate systems and controls,” the FSA said.

UBS, which says it expects to show a fourth quarter loss of up to 2.5 billion Swiss francs as a result of litigation, regulatory issues and restructuring, said it had taken “decisive” action in the wake of the scandal. “We deeply regret this inappropriate and unethical behavior,” said UBS CEO Sergio Ermotti.

Global financial regulators continue to investigate the widespread manipulation of LIBOR, to which some $350 trillion of derivative contracts and $10 trillion of loans are indexed. The scandal, which cost Barclays’ CEO Bob Diamond his job, has led to calls for sweeping changes to the way the rate is set and also for potential alternatives. The British government plans to introduce all the recommendations of an urgent review conducted by the FSA, including making misreporting a criminal offence, and creating a new body that will be tasked with administering Libor.

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