The Swiss Financial Market Supervisory Authority has concluded its proceedings against UBS AG in connection with the submission of interest rates, particularly to the London Interbank Offered Rate (LIBOR). FINMA has established that UBS seriously violated Swiss financial market legislation and ordered measures to be taken to improve the processes involved. FINMA has also ordered UBS to disgorge CHF 59 million in profits to the Swiss Confederation.
Following preliminary enquiries, FINMA initiated enforcement proceedings to investigate whether UBS had infringed upon Swiss supervisory law when submitting interest rates in Switzerland and abroad. This investigation was carried out in close cooperation with various foreign authorities. The proceedings conducted by FINMA focused on the period between 2006 and 2010 and three specific areas:
- interference with the submission of interest rates to benefit proprietary trading positions;
- guidance on submitting interest rates for reputational reasons during the financial crisis;
- UBS's systems and controls for submitting interest rates.
Serious cases of interference with submissions to benefit proprietary trading positions
During the period under inquiry, traders working at UBS made numerous requests asking bank employees responsible for submitting interest rates to submit higher or lower values. In doing so, the traders tried to influence submissions in such a way as to benefit UBS proprietary trading positions. Moreover, the traders were mainly acting in their own interest. There is evidence that many of the requests made to bank employees charged with submitting interest rates to LIBOR in Zurich and London were accepted; only in some cases does the evidence suggest otherwise. Most of the requests were made by one trader who worked in Tokyo from 2006 - 2009. The same trader also contacted employees at third-party banks and independent brokers, thereby seeking to influence the LIBOR submissions of third-party banks.
Inappropriate guidance during the financial crisis
At different stages during the years 2007 and 2008, UBS managers inappropriately gave guidance to those employees charged with submitting interest rates, the purpose being to positively influence the perception of UBS’s creditworthiness.
Deficient systems and controls
Substantial failings in the system and control processes for LIBOR submissions at UBS prevented the improper interference with interest rates from being discovered and the bank from reacting appropriately. Internal guidelines, if they at all existed, were either deficient or not implemented consistently. Moreover, the responsible line managers did not sufficiently control the submission process, neither did internal audits conducted by the Compliance department and Internal Audit uncover the misconduct.
Proceedings and measures taken by FINMA
Numerous employees and a limited number of managers were involved in the misconduct outlined above. FINMA did not find any indication of the then top management at UBS being aware of the traders' misconduct or interference with interest rates for reputational reasons.
FINMA has found that UBS severely violated organisational and proper business conduct requirements. In line with its remit to exercise consolidated supervision of the UBS Group, FINMA has ordered the bank to implement a set of measures in order to improve the processes and controls for the submission of interest rates. To execute these measures, FINMA intends working closely with UBS. Some measures at organisational and personnel level have already been put in place by UBS. In addition, FINMA has ordered UBS to disgorge CHF 59 million in profits to the Swiss Confederation. FINMA’s order is subject to appeal at the Swiss Federal Administrative Court.
FINMA's General Counsel was responsible for the proceedings and the preliminary enquiries. Mark Branson, Head of Banks division at FINMA, was in strict recusal for the entire duration of the proceedings in view of the senior position he held at UBS in Japan from 2006-2007. He was not informed about the course of the supervisory investigation and was also not involved in the decisions made by FINMA. FINMA has therefore respected the jurisdiction of the Federal Supreme Court whereby any conflicts of interest are to be avoided.
Other proceedings in connection with LIBOR and other interest reference rates
The FINMA proceedings took place at approximately the same time as those conducted by the UK Financial Services Authority (FSA), the U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Department of Justice (DoJ). FINMA exchanged information with foreign authorities via the regular administrative assistance channels.
Globally, LIBOR is regarded as the most important interest reference rate for different currencies. It is administered by the British Bankers' Association (BBA). The profits and losses of many interest-rate products depend on changes in LIBOR. Since 2008, banks that contribute to the calculation of LIBOR and other interest reference rates have been accused of making incorrect submissions. Currently, supervisory, criminal and anti-trust authorities in several countries are investigating against more than a dozen banks in connection with suspected manipulation of interest reference rates.
Tobias Lux, Media Spokesperson, phone +41 (0)31 327 91 71, firstname.lastname@example.org