Swiss banking giant UBS has agreed to pay $1.5bn (£940m) to US, UK and Swiss regulators for attempting to manipulate the Libor inter-bank lending rate.
It becomes the second major bank to be fined over Libor after Barclays was ordered to pay $450m to UK and US authorities in the summer.
Regulators worldwide are investigating a number of banks for rigging Libor.
Libor tracks the average rate at which the major international banks based in London lend money to each other.
The bank also admitted to manipulating Euribor and Tibor - the equivalent interest rates set by lenders in the eurozone and in Tokyo.
UBS said it had agreed to pay fines to regulators in three different countries:
It is the second-largest set of fines imposed on a bank to date, after the $1.9bn that HSBC agreed to pay US authorities earlier this month to settle allegations of money-laundering.
"Start Quote
End QuoteThe potential costs to [the banks] could be eye-watering if clients can prove they are out of pocket as a result of market rigging"
The fine "demonstrates the co-ordinated approach regulators are now taking to serious conduct issues that affect jurisdictions internationally," said Nick Matthews, a forensic accountant at consultancy Kinetic Partners.
The bank has also agreed to admit to committing wire fraud through its Tokyo office in the case of manipulating Libor rates for loans denominated in Japanese yen, among others.
It said it would seek a non-prosecution agreement with the DoJ covering the rest of the bank's misbehaviour.
The fine is the latest blow for UBS, following the conviction of rogue trader Kweku Adoboli earlier this year for losing £1.4bn for the bank, a £500m settlement with US authorities for helping US citizens evade taxes.
UBS also suffered the worst losses of any bank from US sub-prime mortgages during the financial crisis, totalling 38bn, and necessitating a bailout from the Swiss authorities.
The bank still faces lawsuits in the US for mis-selling mortgage debt to other investors, including a $6.4bn claim by the US government-sponsored mortgage finance agencies Freddie Mac and Fannie Mae.
Trader collusionUBS said the fines - along with other payouts for mis-selling mortgage debts in the US - were likely to result in the bank recording a loss of 2bn-2.5bn Swiss francs in its financial accounts for the last three months of the year, although it still expects to make a profit for the year as a whole.
What is Libor?
- Libor is the "London Inter-Bank Offered Rate"
- It tracks the average interest rate at which the big international banks based in London are willing to lend to each other
- The Libor rate is used to calculate payments under hundreds of trillions of dollars-worth of financial contracts, including mortgages and loans
- Libor is set every day by the British Bankers' Association, based on estimates submitted by a panel of a dozen or so banks of their borrowing costs
- Banks are accused of lying about their real borrowing costs, in order to manipulate Libor for profit, and to make themselves look stronger during the financial crisis
The Swiss lender acknowledged its staff had manipulated the borrowing rates it submitted, which were then used to calculate the Libor rate - a benchmark interest rate that is used to calculate the payments on hundreds of trillions of dollars-worth of financial contracts - in order to make money on their trades.
According to the FSA, UBS had even gone so far as to give its traders formal responsibility for handling the bank's submissions to the Libor-setting committee at the British Bankers' Association - creating a direct conflict of interest, as the traders could profit depending on what they submitted.
Significantly, UBS also said its traders had colluded with their counterparts at other banks and brokerages.
The FSA said that UBS's Tokyo office had made corrupt payments to brokerages - which helped to bring borrowers and lenders together anonymously in the inter-bank lending market - in order to enlist their support in manipulating Libor.
Besides UBS and Barclays, about a dozen other major banks are involved in setting Libor rates each day across a range of currencies, and most of them are understood to be still under investigation.
UBS chairman Axel Weber said: "The authorities have recognized UBS for the thoroughness of our investigation and our exceptional co-operation."
According to the FSA, it would have fined UBS £200m, but gave the bank a 20% discount because it co-operated. Nonetheless, the £160m fine was still the largest ever imposed by the UK authority.
Barclays - which was the first bank to come clean over the scandal - has previously indicated that its fine of $450m would be overshadowed by the fines to be imposed on other culpable banks.
'Not pretty reading'Like Barclays, UBS also accepted that management had also told staff to submit inappropriately low estimated borrowing costs for the bank during the financial crisis, in order to give a false impression of the bank's ability to borrow cheaply and maintain market confidence in the bank.
"We deeply regret this inappropriate and unethical behaviour," said UBS chief executive Sergio Ermotti.
"No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity."
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Former Schroders group managing director Philip Augar told BBC News that disadvantaged customers could take action against banks
The FSA said that the misconduct at UBS was extensive and widespread and involved at least 45 individuals.
"At least 2,000 requests for inappropriate submissions were documented - an unquantifiable number of oral requests, which by their nature would not be documented, were also made," the FSA said.
"Manipulation was also discussed in internal open chat forums and group emails, and was widely known."
It was so common that the FSA said every single Libor submission by UBS during the period it examined, from 2005 to 2010, may have been tainted.
"The findings we have set out in our notice today do not make for pretty reading," said the FSA's head of enforcement, Tracy McDermott.
Despite this, five separate internal audits by the bank's compliance department failed to pick up on the misbehaviour.
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