UBS AG

The Financial Conduct (the FCA) imposed a financial penalty of £233,814,000 on UBS AG (UBS) of 1 Finsbury Avenue, London, EC2M 2PP. The FCA's action took effect on 11 November 2014 and a copy of the Final Notice, which sets out the reasons for the action is displayed on the FCA's website and can be accessed via the following link: http://www.fca.org.uk/static/documents/final-notices/final-notice-ubs.pdf The foreign exchange market (FX market) is one of the largest and most liquid markets in the world. Its integrity is of central importance to the UK and global financial systems. Over a period of five years, UBS failed properly to control its Zurich voice trading operations in the G10 spot FX market, with the result that traders in this part of its business were able to behave in a manner that put UBS's interests ahead of the interests of its clients, other market participants and the wider UK financial system. The FCA expects firms to identify, assess and manage appropriately the risks that their business poses to the markets in which they operate and to preserve market integrity, irrespective of whether or not those markets are regulated. The FCA also expects firms to promote a culture which requires their staff to have regard to the impact of their behaviour on clients, other participants in those markets and the financial markets as a whole. UBS's failure adequately to control its Zurich voice trading operations in the G10 spot FX market is extremely serious. The importance of this market and its widespread use by market participants throughout the financial system means that misconduct relating to it has potentially damaging and far-reaching consequences for the G10 spot FX market and financial markets generally. The failings described in the Final Notice undermine confidence in the UK financial system and put its integrity at risk. UBS breached Principle 3 of the FCA's Principles for Businesses in the period from 1 January 2008 to 15 October 2013 (the Relevant Period) by failing to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems in relation to G10 spot FX voice trading in Zurich. References in the Final Notice to UBS's G10 spot FX trading business refer to its relevant voice trading desk based in Zurich. During the Relevant Period, UBS did not exercise adequate and effective control over its G10 spot FX trading business. UBS relied primarily upon its front office FX business to identify, assess and manage risks arising in that business. The front office failed adequately to discharge these responsibilities with regard to obvious risks associated with confidentiality, conflicts of interest and trading conduct. The right values and culture were not sufficiently embedded in UBS's G10 spot FX trading business, which resulted in it acting in UBS's own interests as described in the Final Notice without proper regard for the interests of its clients, other market participants or the wider UK financial system. The lack of proper control by UBS over the activities of its G10 spot FX traders in Zurich undermined market integrity and meant that misconduct went undetected for a number of years. UBS's control and risk functions failed to challenge effectively the management of these risks in the G10 spot FX trading business. UBS's failings in this regard allowed the following behaviours to occur in its G10 spot FX trading business: (1) Attempts to manipulate the WMR and the ECB fix rates, alone or in collusion with traders at other firms, for UBS's own benefit and to the potential detriment of certain of its clients and/or other market participants; (2) Attempts to trigger clients' stop loss orders for UBS's own benefit and to the potential detriment of those clients and/or other market participants; and (3) Inappropriate sharing of confidential information with traders at other firms, including specific client identiies and, as part of (1) and (2) above, information about clients' orders. These failings occurred in circumstances where certain of those responsible for managing front office matters were aware of and/or at times involved in behaviours described above. They also occurred despite the fact that UBS received whistleblowing reports between November 2010 and December 2012 which alleged misconduct by FX traders. Internal reports by UBS in 2011 and 2012 also identified significant weaknesses and gaps in UBS's systems and controls around market conduct issues. UBS was on notice about misconduct associated with LIBOR / EURIBOR during the Relevant Period. The FCA issued a Final Notice and a financial penalty against UBS on 19 December 2012 in relation to benchmark setting for LIBOR / EURIBOR. Against this background UBS engaged in an extensive remediation programme across its businesses in response to LIBOR / EURIBOR which included significant improvements to its systems and controls relating to submissions-based benchmarks. Despite these improvements, the steps taken during the Relevant Period in its G10 spot FX trading business did not adequately address the root causes that gave rise to failings described in the Final Notice. The FCA acknowledges the significant co-operation and assistance provided by UBS during the course of its investigation. The FCA recognises that UBS acted promptly in being the first firm to bring the behaviours referred to in the Final Notice to the FCA's attention. UBS is continuing to undertake remedial action and has committed significant resources to improving the business practices and associated controls relating to its FX operations. It has taken important steps to promote changes to the culture and values across its business. The FCA recognises the work already undertaken by UBS in this regard. The Final Notice relates solely to UBS's conduct in its G10 spot FX trading business in Zurich. It makes no criticism of any entities other than the firms engaged in misconduct as described in the Final Notice.