UBS to Cap Bonus of Forex and Metals Staff on FINMA Orders
UBS AG (UBS) is set to limit the bonus of its employees in its foreign exchange and precious metals business globally, as part of the corrective measures imposed by The Swiss Financial Market Supervisory Authority FINMA. The measures were imposed as the regulator detected the company’s misconduct in its forex trading business.
Per the FINMA’s sanction, the bonus cap, which will be applicable for a period of two years, restricts the maximum annual variable compensation to 200% of the basic salary of the employees in foreign exchange and precious metals. Also, it involves introduction of special review and approval process for other highly paid employees of the Investment Bank in Switzerland whose variable compensation is over 200% of the basic salary.
Among other impositions, UBS will be obliged to automate at least 95% of its forex trading. More automation in trading will aid in limiting manipulation going forward.
Notably, UBS has implemented several corrective measures imposed by FINMA.
Per the findings of the regulator, the Swiss banking giant’s employees in Zurich tried to rig forex benchmarks for a considerable period of time so as to gain profits for the bank or for third parties. Also, acting against clients’ interest, the foreign exchange traders were engaged in several wrongdoings including sharing of confidential information of the clients. In both cases, the bank colluded with other banks.
Further, FINMA found that UBS had inadequate risk management, controls and compliance in its forex trading. Infringement of control requirements and misbehavior of the employees, led to severe violation of appropriate business conduct requirements which led charges worth CHF134 million ($139 million) on UBS by FINMA.
While FINMA concluded its ‘enforcement proceedings’ against UBS with respect to the forex trading, the regulator has commenced investigations against the bank’s 11 ex and current employees in the related matter.
Apart from FINMA, the Swiss Banking giant also reached settlements with the US Commodity Futures Trading Commission (:CFTC) and UK Financial Conduct Authority (FCA) over the regulators’ industry-wide probe into inconsistencies in the $5.3 trillion-a-day foreign exchange market. In total, the company has been slapped with a penalty of around CHF 774 million ($800 million) by the regulators.
Currently, the company is extending cooperation with ongoing forex and related enquiries, including investigations of involved individuals.
Bottom Line
Financials of UBS are not likely to be impacted by the settlements as the company has fully reserved for the charges in third-quarter 2014.
UBS mentioned in its release that the firm has taken necessary action against the alleged employees. Also, the company has taken several steps to improve the control structure of its forex business and the firm on the whole.
Undoubtedly, the latest settlements relieve the company from its legacy issues to some extent. We remain encouraged by the efforts of the Swiss banking giant in gradually resolving its legal overhangs. Also, we believe the implementation of the corrective measures by UBS will gradually aid in preventing such wrongdoings in business in the future.
Other major banks that were also part of the settlement with the regulators include Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), The Royal Bank of Scotland Group plc (RBS) and HSBC Holdings plc.
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