FSA fines and enforcement actions in 2012

Between 1 January 2005 and 31 December 2010 the FSA found that UBS breached Principles 3 and 5 of the FSA’s Principles for Businesses by misconduct in the submission and calculation of LIBOR and EURIBOR. UBS employees and managers, including four traders, colluded with interdealer brokers and some JPY LIBOR panel banks to influence JPY LIBOR submissions; this conduct undermined the integrity of those benchmark rates. The FSA imposed a financial penalty of £160,000,000 on UBS AG, effective 19 December 2012. (Principle 3 requires firms to organise and control their affairs responsibly and effectively; Principle 5 requires firms to observe proper standards of market conduct.)

The Financial Services Authority (the FSA) fined UBS AG £29.7m (reduced from £42.4m for early settlement) for failures in systems and controls that allowed an employee to carry out unauthorised trading which produced total losses of US$2.3bn. The unauthorised trading took place on the Exchange Traded Funds Desk in the Global Synthetic Equities trading division from UBS’s London branch between 1 June 2011 and 14 September 2011. The FSA found UBS breached Principle 3 (take reasonable care to organise and control its affairs, including adequate risk management systems) and Principle 2 (conduct business with due skill, care and diligence) and issued a Final Notice on 26 November 2012.

On 19 October 2012 the FSA issued a Final Notice fining Bank of Scotland plc £4.2m for holding inaccurate records for about 250,000 Halifax mortgage customers. The errors arose because mortgage information was held on two unsynchronised systems (with manual updates in some cases), so customers missed important updates to mortgage terms between 2004 and 2011 and some were wrongly excluded from a redress programme (a Voluntary Variation of Permission). The errors led the firm to contact 33,700 customers who should not have been included and to make £20.4m of goodwill payments to 22,700 of them; the FSA reduced an initial proposed penalty of £6m to £4.2m after applying a Stage 1 discount. The breach was of Principle 3 (firms must take reasonable care to organise and control their affairs).

On 27 June 2012 the Financial Services Authority (FSA), the FCA's predecessor, fined Barclays Bank £59.5 million — its largest ever fine — for misconduct in the way it submitted rates for LIBOR and EURIBOR, the benchmark interest rates that underpin trillions of pounds of loans and financial contracts. Between 2005 and 2009 Barclays' submissions took account of requests from its own derivatives traders who stood to profit, it tried to influence other banks' EURIBOR submissions, and during the financial crisis it lowered its LIBOR submissions because senior managers were worried about negative media comment on the bank's health. The FSA found Barclays lacked adequate controls over the process and failed to act with due skill and care when concerns were raised internally. Barclays settled early for a 30% discount (the fine would otherwise have been £85 million) and paid a further $360 million to US authorities, bringing the total to about £290 million; within days chairman Marcus Agius and chief executive Bob Diamond had resigned.

On 9 March 2012 the FSA issued a Final Notice publicly censuring Bank of Scotland plc for breaching Principle 3 of the FSA’s Principles for Business during January 2006 to December 2008. Principle 3 requires firms to take reasonable care to organise and control their affairs responsibly and effectively, with adequate risk‑management systems. The FSA found the bank’s Corporate Banking Division pursued an aggressive growth strategy in high‑risk, sub‑investment grade lending without taking reasonable steps to assess, manage or mitigate the risks, maintained weak controls and oversight as markets deteriorated in 2007, and between April and December 2008 failed to take reasonable care over high value transactions showing signs of stress. The FSA said a financial penalty would have been merited and substantial but, in the exceptional circumstances of the case, decided not to impose one and issued a public censure instead.