Court criticises FCA investigation into interest rate rigging

UBS has recently been under investigation by the regulator, the Financial Conduct Authority (FCA) over allegations of “widespread” interest rate rigging. The FCA failed to pursue senior bankers over the rigging of the libor rate, which is used to price trillions of pounds worth of loans, mortgages, credit cards and other credit contracts.

However, a court has now criticised the investigation. The judge expressed deep concerns over the FCA’s failure to sanction the senior staff at UBS, and also criticised the regulators reasons for failing to do so. The Upper Tribunal hears all challenges against the FCA, and dismissed appeals from the company, including one from a junior trader against the previous ban imposed by the regulator.

The FCA also banned former UBS derivatives trader, Arif Hussein, from working in financial services after discovering he had manipulated the libor rate in 2009. The tribunal rejected this evidence, and the court described the conduct of the FCA as “troubling”.

The judge didn’t rule that Mr Hussein had rigged the rate for his own personal gain; but, said that he hadn’t been “truthful” when being later questioned by the FCA. Benjamin Strong, a lawyer for the FCA, said that “the senior people somehow manage to keep their fingerprints off the relevant documents sometimes”.

Judge Timothy Herrington said: “Mr Hussein was a relatively junior trader at UBS and he was put under investigation in relation to a limited number of chats which took place over a very short period. This was against a background of widespread manipulation of Libor within UBS for which senior managers bear ultimate responsibility and which… was widely condoned. ”

Mr Hussein, who resigned from UBS in 2009, said in a statement: “The FCA wanted to impose an enormous financial penalty on me, which would have put me under dire financial pressure and most likely resulted in my young family losing their home,” he said in a statement. This financial penalty was to be imposed for conduct – which the judge agreed – I did not commit.”

A spokesperson for the FCA said: “The FCA carefully considered the available evidence in relation to individuals potentially engaged in Libor misconduct at UBS. The extent of the evidence, the responsibilities of the individual, where they were based, the action of other agencies and whether they were FCA approved persons were all factors in the nature and timing of any action taken.”