How did the FSA miss this? 5 years of "extensive and widespread" misconduct across three continents!

You can tell how much miscreants respect authority by the effort they put in to hiding their misbehaviour. Shoplifters in a well guarded store take great care, preparing themselves with voluminous bags and outer-wear providing space to stuff misappropriated stuff. British prisoners of war took the most elaborate precautions to avoid the notice of their jailers when trying to dig themselves out of prison camps. 

On the other hand, where the guardians are either incompetent, complicit, don't actually give a damn, or have been ordered to turn a blind eye, the miscreants have no need to take precautions.


The contempt the Financial Services Authority (FSA) is held in by those they pretend authority over is evident from the stunning openness of their wards' frauds. To know this you have to look no further than the FSA's own reports, such as that into LIBOR rigging by the bank UBS. Undisguised extensive, widespread, open and shamelessly documented rigging occurred over several years and several continents before the FSA's pips squeaked. The traders made scant effort to disguise their misconduct which the FSA describes as "extensive and widespread" involving "At least 2,000 requests for inappropriate submissions [that] were documented – an unquantifiable number of oral requests", and occurring in "various locations around the world including Japan, Switzerland, the UK and the USA".


The financial services industry contempt for the FSA is well founded:
a) They know they are unlikely to be caught.

b) Even if they are caught, the fines - even those that run into hundreds of millions of pounds - are a small fraction of profits.

c) Fines are paid by shareholders. The individual staff who perpetrate the misdeeds hardly ever pay any meaningful penalty.


To detail the brazen behaviour banks get up to, contemptuous of their regulators, we need do little more than quote directly from the FSA:

"Between 1 January 2005 to 31 December 2010 the misconduct included:

• UBS’s traders routinely making requests to the individuals at UBS responsible for determining its LIBOR and EURIBOR submissions to adjust their submissions to benefit the traders’ trading positions. 
• Giving the roles of determining its LIBOR and EURIBOR submissions to traders whose positions made a profit or loss depending on the LIBOR / EURIBOR fixes. This combination of roles was a fundamental flaw in organisational structure given the inherent conflict of interest between these two roles. 
• Colluding with interdealer brokers in co-ordinated attempts to influence Japanese Yen (JPY) LIBOR submissions made by other panel banks.  Corrupt brokerage payments were made to reward brokers for their efforts to manipulate the LIBOR submissions of panel banks. 
• Colluding with individuals at other panel banks to get them to make JPY LIBOR submissions that benefited UBS’s trading positions. 
• Adopting LIBOR submissions directives whose primary purpose was to protect the bank’s reputation by avoiding negative media attention about its submissions and speculation about its creditworthiness.  

The misconduct was extensive and widespread.  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.  Manipulation was also discussed in internal open chat forums and group emails, and was widely known.  At least 45 individuals including traders, managers and senior managers were involved in, or aware of, the practice of attempting to influence submissions.  The routine and widespread manipulation of the submissions was not detected by Compliance or by Group Internal Audit, which undertook five audits of the relevant business area during the relevant period.

Even when the trading and submitting roles were split in Autumn 2009, UBS’s systems and controls did not prevent traders from camouflaging their requests as “market colour”.   Given the widespread and routine nature of the requests to change LIBOR and EURIBOR and the nature of the control failures, the FSA found that every LIBOR and EURIBOR submission, in currencies and tenors in which UBS traded during the relevant period, was at risk of having been improperly influenced to benefit derivatives trading positions.

The misconduct occurred in various locations around the world including Japan, Switzerland, the UK and the USA. "