UBS sanctioned, 3 other banks must take measures

Switzerland’s Finma, the bank supervisory body, 12 November made world headlines for taking a strong stance against UBS, the country’s largest bank, saying it must pay out CHF134 million. Finma pointed not just to UBS but to three other Swiss banks that it said were remiss in managing foreign exchange traders.

The UBS fine was part of more than $4.3 billion in fines levied on six banks worldwide, by regulators, Wednesday, reports Reuters.

The Wednesday announcement from Finma left no doubt about what a group of UBS employees were up to – but Finma suggests that similar behaviour was taking place in precious metals departments of banks:

“Finma found that over an extended period of time the bank’s employees in Zurich at least attempted to manipulate foreign exchange benchmarks. In addition, employees acted against the interests of their clients. Risk management, controls and compliance in foreign exchange trading were insufficient. By breaching control requirements and owing to the misconduct of its employees, UBS severely violated the requirements for proper business conduct. Alongside the imposition of other corrective measures, Finma has ordered UBS to disgorge a total of CHF 134m. It has also initiated enforcement proceedings against eleven persons involved in the case. “

Reuters suggests that Finma has been soft on banks, but the body has been working closely for the past year with other international bank surveillance bodies to track activity by banks in the foreign exchange markets – notably with the UK’s body. One of the most intriguing parts of their research was looking at what traders say to each other in chats. Details, in German

According to Finma, “the severe breaches of supervisory law allowed the bank to generate unjustified revenues or avoid costs. Finma has therefore ordered the disgorgement of illegally generated profits and avoided costs amounting to CHF 134m.” But it slapped a number of other measures on the bank that add up to a tough new set of rules for how it plays the currencies markets:

- Finma has for a period of two years limited the maximum annual variable compensation to 200% of the basic salary for foreign exchange and precious metals employees globally. A special review and approval process will be introduced for other high earners of the Investment Bank in Switzerland who receive variable compensation that exceeds 200% of the basic salary.

- Automating foreign exchange trading: UBS is obliged to automate at least 95% of its global foreign exchange trading.

- Separation of client and proprietary trading: FINMA has ordered that effective measures must to be taken to manage conflicts of interest. In particular an organisational separation of client and proprietary trading should be introduced.



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