UBS Announces Settlement Talks Over Forex Rate Manipulation

Despite admissions that large banks colluded to manipulate FX rates, regulators are taking the view that it was only "conduct

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The largest investment bank in Switzerland, and one of the largest banks in the world, UBS, announced that it has begun settlement talks with an unnamed regulator over allegations of the bank’s involvement in FX rate manipulation in recent years.

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Britain’s Financial Conduct Authority (FCA) launched a probing investigation in October 2013 into allegations that traders working for the largest FX market participants (banks) were actively colluding in an attempt to manipulate foreign exchange benchmarks.

According to Forex Magnates’ research, the FCA is currently talking to UBS and five other banks – Barclays, HSBC, Royal Bank of Scotland, JP Morgan and Citigroup – about a possible settlement that could result in heavy fines being imposed on each bank confirmed to have been involved in manipulative behaviour. The resulting fines are rumoured to be in the £300 million to £500 million range for each bank. The banks are expected to be fined different amounts depending on the gravity of the alleged misconduct.

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More than 30 traders from various banks have been put on leave, suspended or fired, since the FX manipulation revelation hit the market late last year. So far, no individual or bank has been formally accused of any wrongdoing however.

In a share-swap prospectus published today, UBS did not identify the regulator concerned, but speculation is rife that UBS is liaising first and foremost with the Swiss Financial Market Supervisory Authority (FINMA) – the Swiss national regulator. Regardless of the identity, it is likely that there is contact with other regulatory agencies given that the manipulation enquiries are global and being conducted multilaterally.

Banks are pushing for a coordinated settlement with the FCA, and are keen for an agreement to be reached by the end of the year. The underlying point is that even when being investigated for market fixing, the perpetrators persist in mitigating the narrative and controlling the context of the investigation. The fact that ‘settlement talks’ are ongoing, instead of a full criminal investigation, suggests banks have an immensely influential position in financial markets and any non-compliant practises are often appeased by regulators.

In the increasingly likely eventuality that individuals will be blamed rather than the concerted FX market rigging among the largest market participants is yet another sign that when it comes to malpractice, the larger firms tend to avoid severe repercussions with financial penalties accounting for a very small proportion of the probable benefit obtained from the offence. This trend is looking plausible to continue with penalties estimated to be in the £100m-£500m range, while rigged benchmark rates affected trillions in transactions. A similar outcome occurred with LIBOR fixing penalties.

If and when settlements talks are concluded and regulatory findings announced, it will be intriguing to see the scale of misconduct as well as the scope. Back in March 2013 – there were suggestions that the Bank of England was to some extent involved in the rigging (or at least had intimate awareness) of benchmark fixing at the inter-bank level.

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