Traders at UBS tried to rig the Hong Kong Interbank Offered Rate (HIBOR), an investigation has found.
The Hong Kong Monetary Authority (HKMA), which investigated nine banks designated as HIBOR reference banks, found evidence of misconduct in the submission of HIBOR rates by only one bank, and no evidence of collusion between these banks to rig the HIBOR fixing.
In the investigation of UBS, the HKMA found about 100 communication records during 2006 to 2009, in the form of internal chat messages, which contained change requests by several UBS traders to the UBS HIBOR submitter with a view to rigging the HIBOR fixing.
In October 2010, UBS ceased to be a HIBOR reference bank and no longer makes submissions for the HIBOR fixing.
The HKMA investigation also found that UBS failed to report to the HKMA misconduct of its staff relating to the change requests when the bank became aware of these activities. Such failure is unacceptable because prompt reporting of the matter was essential in enabling the HKMA to take timely supervisory or other follow-up actions. Further, the investigation found material weaknesses in UBS’s internal controls and governance in managing the HIBOR submission process and in other areas.
In the light of the above investigation findings, the HKMA has required UBS to:
• take appropriate disciplinary actions against those staff members responsible for the misconduct in the HIBOR fixing and for the failure to report to the HKMA such misconduct;
• implement a remedial plan, approved by the HKMA, for the control and governance weaknesses identified within six months; and
• pursuant to section 59(2) of the Banking Ordinance, submit to the HKMA a report prepared by an independent external auditing firm assessing the effectiveness of the implementation of the remedial plan.
The HKMA will consider whether further supervisory actions will be needed in light of UBS’s compliance with the above requirements.
An HKMA spokesperson says: “The HKMA is committed to protecting the integrity of the HIBOR benchmark fixing mechanism. In May 2013, the HKMA promulgated a statutory guideline on Code of Conduct for Benchmark Submitters to enhance the robustness of the benchmark fixing mechanism, including HIBOR. The HKMA expects all benchmark-setting banks to maintain proper oversight for such activities and put in place adequate and effective systems of control.
“As for UBS, the bank has cooperated with the HKMA’s investigation and agreed to comply with the requirements by taking appropriate follow-up actions promptly. The case is a clear reminder to all banks of their duty to uphold robust internal controls and governance and to take adequate measures to prevent and detect internal improprieties.”