The Hong Kong Monetary Authority (HKMA) announced today the outcome of its investigations into the Hong Kong Interbank Offered Rate (HIBOR) fixing.
On 19 December 2012, the HKMA announced that it had commenced an investigation of UBS after receiving information from overseas authorities about possible misconduct by the bank in its submissions for the HIBOR fixing.
The HKMA later extended the exercise to cover 8 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. In February 2014, the HKMA 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.
Nine of the 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 rigorous investigation process covered over 31 million communication records and numerous inquiries and interviews with bank staff involved in the HIBOR fixing.
The HKMA 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, HKMA said in a statement.
In the investigation of UBS AG (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, the agency has said in an announcement. 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.