UBS to Curb Bonuses Amid Swiss Currency Probe of StaffHugo Miller and Elena Logutenkova
UBS AG has been ordered to cap bonuses for foreign-exchange and precious-metals bankers as Switzerland’s regulator probes 11 of the bank’s current and former employees as part of its inquiry into currency rigging.
The Swiss Financial Market Supervisory Authority, or Finma, is investigating the spot-trading desk based near Zurich, where the investment bank is located. The unit employed about 14 people in the period under probe, and Finma is questioning individuals including senior managers of foreign-exchange and precious-metals trading, it said.
The measures, which include 134 million Swiss francs ($139 million) in profit that Finma ordered UBS to repay, the highest ever levied by the regulator, are part of the firm’s settlement of an international probe that also involved five U.K. and U.S. banks. UBS was fined 233.8 million pounds ($372 million) by the U.K.’s Financial Conduct Authority and $290 million by the U.S. Commodity Futures Trading Commission today.
“People need to feel that there are serious personal sanctions,” Tim Dawson, a banking analyst at Helvea SA in Geneva, said today. “What they’re trying to say is you behave badly, you will get caught.”
Finma capped variable compensation for UBS’s foreign-exchange and precious metals employees to 200 percent of basic salaries for two years and UBS will be obliged to automate at least 95 percent of its foreign-exchange trading.
UBS was trading 0.4 percent higher at 16.81 Swiss francs in Zurich at 4:19 p.m. local time.
It also said UBS will introduce a review and approval process for other employees at the investment bank in Switzerland whose bonuses are larger than twice their basic salaries.
UBS, based in Zurich, has said previously it is taking “appropriate action” against employees as a result of its own investigation into foreign exchange. The company today said it doesn’t know the identity of the 11 employees under probe. About 90 percent of its currency trading is currently automated, the bank said.
Less than 40 people at the investment bank in Switzerland and foreign exchange business globally will be affected by Finma’s actions on bonuses, a person with knowledge of the matter said.
Mark Branson, who took the helm at Finma in April, is taking a tougher approach than his predecessors in tackling financial wrongdoing. Branson, a former UBS and Credit Suisse Group AG employee, said in a speech last month that Finma would crack down more heavily on individuals so that they “know they have something to lose” given sanctions on institutions were not having the desired effect.
Branson said today the degree of automation in foreign-exchange trading at UBS in the past was substantially less than 90 percent and has been increasing in particular since the investigation began a year ago. There is no need to have more than 5 percent of the volume go through voice trades, he added.
“The human factor played a huge role,” Branson said on a call with journalists. “The limitation of the human factor in this business will limit the potential for manipulation in the future.”
UBS “severely violated” the requirement for proper business conduct in currency markets as its employees tried to manipulate foreign-exchange benchmarks and acted against the interest of clients, Finma said in today’s statement.
“We are at the beginning of these enforcements, and presumption of innocence applies to these people,” said Branson, declining to name the 11 individuals.
The settlements announced today are the first since authorities around the world began investigating allegations last year that traders at the biggest banks colluded with counterparts at other banks to manipulate benchmark rates. Probes have expanded to include sales practices and other aspects of the $5.3 trillion-a-day foreign-exchange market.
Trader chat rooms have been an area of focus for regulators.
“Stay short, flow here, I tell you when we are done, keep it super hush bro,” one unnamed UBS trader is quoted as saying to a trader at another bank, Finma cited in its report today.
Another UBS trader is quoted as saying “I done the fix today...We lost small money on the fix but that more due to me really trying to ramp it and go for the home run. Last time we had a fix like this it worked out nicely.’”
The CFTC today ordered UBS, Citigroup Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Royal Bank of Scotland Group Plc and UBS to pay $1.4 billion for their role in the FX probe while the FCA announced total fines of 1.1 billion pounds for those banks in its own investigation. The Office of the Comptroller of the Currency today fined Bank of America Corp. $250 million, and JPMorgan Chase & Co. and Citigroup Inc. each $350 million each as part of its settlement of the cases.
Finma, based in the Swiss capital of Bern, is limited to confiscating profits related to a serious violation and imposing specific measures to restore compliance with Swiss law. It can also take actions against individuals, including banning them from working at the companies it supervises.
UBS set aside $1.74 billion as a provision for legal costs at its investment bank last month. UBS is the fourth-biggest currency dealer, according to Euromoney Institutional Investor Plc. Citigroup Inc., Deutsche Bank AG and Barclays Plc are the top three.
Antitrust authorities in the U.S., European Union and Switzerland have been investigating the allegations as well. UBS has won immunity from the Justice Department’s antitrust division in exchange for evidence of misconduct and was the first to approach the European Commission in a bid for leniency there, people with knowledge of those probes have said.
Criminal investigations are also under way, and prosecutors in the U.S. are pressing to bring charges against a bank this year, and against individuals next year, people with knowledge of those probes have said.