14/12/2012 04:47 GMT | Updated 14/12/2012 08:57 GMT

UBS's Libor Settlement Is 'Close', Suggestion Swiss Bank Will Face £1bn Fine

Swiss banking giant UBS is understood to be close to agreeing a $1 billion payment for its involvement in the Libor rate rigging scandal.

The Wall Street Journal reported the UBS settlement arrive early next week, while the FT believes a settlement could even be reached as quickly as Monday 17 December.

The total amount - worth around £620m - is a combined penalty from US and UK regulators. Any settlement would come about six months after Barclays became the first bank to agree a settlement, paying a fine of £290m to the US and British authorities.

Libor is calculated using estimates submitted by banks of their borrowing rates; more than a dozen banks are being accused of submitting false estimates and coordinating with each other to manipulate the rates to improve trading outcomes.

A $1bn fine would top off a dreadful year for UBS, which has already already fired 20 traders after conducting its own review into its processes, as well as losing £1.4bn because of rogue trader Kweku Adoboli, £29 million for its systemic failings which allowed Adoboli's actions, £233 million on the flop that was the Facebook IPO, and announcing up to 10,000 jobs could be scrapped, most of which are in London.

The news arrives hot on the heels of the arrests of three former City traders, including former UBS employee Thomas Hayes, who were arrested on Tuesday 11 December over the alleged manipulation of Japanese borrowing rates as part of a Serious Fraud Office investigation into Libor-rigging. The two others were Terry Farr and James Gilmour, who both worked at interdealer broker RP Martin, according to Reuters.

The SFO's actions mark the first arrest of bank staff in connection with allegations that major financial institutions across the world conspired to manipulate key borrowing rates.

Andrew Oldland QC, partner at law firm Michelmores, has conducted a number of prosecutions for the SFO in the past and said this SFO investigation may focus on offences under the Fraud Act 2006 and the Theft Act 1968, both of which require proof of dishonesty.

"The nature and tone of the emails passing between the derivatives traders and Libor submitters, as revealed in the FSA's final notice on Barclays, would appear to provide good evidence for the prosecution of offences under the Fraud Act or the Theft Act of the authors of the emails. Any SFO prosecution is likely to use this evidence as a starting point. What will be more interesting is how far up the chain of command the evidence leads," he told Huff Post UK.

"However, any prosecution for the attempted manipulation of Libor during the financial crisis under the Fraud Act or the Theft Act is likely to be fraught with difficulty given the 'misunderstanding' between senior Barclays management and the Bank of England over the reduction of the Barclays Libor figures. Those lower down the hierarchy will undoubtedly claim they genuinely believed that what they were doing was sanctioned by the authorities and were not therefore behaving dishonestly.

"Any criminal prosecution is likely to focus on the attempted manipulation for short term profit between 2005 to 2007 and on relatively junior figures in the banks."

If there is no direct evidence implicating them, those higher in the banks' hierarchy are more likely to face personal regulatory sanction (on the basis of inadequate management & supervision) by the FSA than criminal prosecution, Oldland added, but direct evidence could come from junior figures at the banks who decide to plead guilty and, in anticipation of a lesser sentence, give evidence against those more senior figures.