Hong Kong Regulator Clears All Banks, Except UBS, in Rate-Rigging Investigation

Hong Kong Regulator Clears All Banks, Except UBS, in Rate-Rigging Investigation

 The Hong Kong Monetary Authority (HKMA), announcing the results of its Hong Kong Interbank Offered Rate (HIBOR) rate-fixing investigation into the actions of nine banks, said that it has 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.

Nine banks designated as HIBOR reference banks were required to appoint external firms, approved by the HKMA, to examine the relevant communication records (such as internal and external chat messages) for periods between 2005 and 2012.  The HKMA said that the investigation covered over 31 million communication records and that it had “numerous inquiries and interviews with bank staff.”

The HKMA said that, in its investigation of UBS AG, the HKMA found about 100 communication records during 2006 to 2009, in the form of internal chat messages, that contained change requests by several UBS traders to the UBS HIBOR submitter with a view to rigging the HIBOR fixing.  The HKMA said that, in October 2010, UBS ceased to be a HIBOR reference bank and that it no longer makes submissions for the HIBOR fixing.

The HKMA said that its 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.  It stated that “[s]uch 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 HKMA said that its 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 said that it 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 said that it will consider whether further supervisory actions will be needed in light of UBS’s compliance with the above requirements.

An HKMA spokesperson said, “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.”  The spokesperson added, “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.”

The HKMA began its investigation on December 19, 2012 after receiving information from overseas authorities about possible misconduct by UBS in its submissions for the HIBOR fixing.  The HKMA later extended the investigation to cover eight other banks, namely Bank of Tokyo-Mitsubishi UFJ, Citibank, Crédit Agricole Corporate and Investment Bank, Deutsche Bank, Hongkong & Shanghai Banking Corporation, JPMorgan Chase Bank, Royal Bank of Scotland and Société Générale.  The KHMA said that, in February 2014, it required another bank to conduct an external review of its communication records, which is in progress, based on information warranting follow-up actions by the HKMA.

The HKMA said that its investigation of UBS found that between September 2006 and June 2009, six traders and the HIBOR submitter of the bank (all of them have left UBS) communicated in about 100 internal chat messages that contained change requests with a view to rigging the bank’s submissions for the HIBOR fixing.  The HKMA said that there was evidence that about one-third of these change requests affected the HIBOR fixing rates submitted by UBS.  For the remaining two-thirds, the HKMA said, there was no evidence to suggest that the outcome of the HIBOR fixing was impacted.  The HKMA added that, according to its estimate, the UBS change requests had negligible impact on the actual outcome of the HIBOR fixing. 

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