* Regulator investigated UBS over currency, precious metals
* UBS running combined foreign exchange and gold operation
* Gold "fix" to be replaced by electronic platform
(Adds background, comment)
By Jan Harvey
LONDON, Nov 12 Switzerland's financial watchdog
said on Wednesday it had found a "clear attempt" to manipulate
precious metals price benchmarks during a cross-market
investigation into trading at UBS bank.
The FINMA regulator revealed its findings just days after
the precious metals industry decided to automate the setting of
reference prices for gold, ending the twice-daily "fix" by a
panel of banks which has been used for almost a century.
Along with other precious metal benchmarks, the gold fix
has come under increased regulatory scrutiny since a scandal
broke in 2012 over manipulation of the Libor interest rate,
followed by revelations of similar behaviour on the global
Regulators fined six major banks on Wednesday a total of
$4.3 billion over the foreign exchange manipulation, including a
134 million Swiss franc ($139 million) penalty that FINMA
slapped on UBS, Switzerland's biggest bank.
FINMA's director Mark Branson said investigations had shown
the problems at UBS went beyond currency trading. "The behaviour
patterns in precious metals were somewhat similar to the
behaviour patterns in foreign exchange," he said in a conference
call with journalists.
As UBS has precious metals and foreign exchange desks under
combined leadership, it was not surprising to find similar
behaviour, he said. "But we have also seen a clear attempt to
manipulate fixes in the precious metal market," added Branson,
himself a former UBS banker.
FINMA said in its report that it had seen repeated "front
running" - trading on advance information not available to
clients - on the now defunct once-daily silver fix.
CME Group and Thomson Reuters were named in July as the
operators of a new electronic silver benchmark which replaced
Regulators have also imposed penalties over gold trading
practices this year. Barclays Plc was fined 26 million pounds
($43.8 million) in May for failures in internal controls that
allowed a trader to manipulate the setting of gold prices.
INTEGRITY OF THE FIX
Until this year, the gold fix was set by five banks via a
twice-daily conference call but UBS was not one of them.
Despite the UBS charges, participants in the gold market
said they were confident of its integrity. "It is hard to make
out quite what impact on the fix price itself would have been,"
one said. "(This was) not a problem with the fixing, but with
culture/oversight of traders placing orders."
Deutsche Bank said in January it was putting its
seat at the fix up for sale, but failed to find a buyer, leaving
the process with only four members.
Sources close to the matter later said in June that Deutsche
was conducting its own investigation into trading around the
setting of London's daily gold price benchmark, in addition to
one being carried out by Germany's financial watchdog Bafin.
Both Bafin and Deutsche Bank declined comment on Wednesday.
The gold fix panel members have announced they will disband
the process, which will be replaced by an electronic platform
operated by U.S. bourse Intercontinental Exchange (ICE).
The abandonment of the gold fix could mark the beginning of
an even wider industry overhaul that may ultimately dilute the
dominance of highly profitable bilateral over-the-counter
trading. More than $5 trillion in gold transactions are made
over the counter in London every year.
Banks are becoming increasingly risk-averse in their
precious metals operations. The London Bullion Market
Association (LBMA) will stop producing its gold lending rates
data, GOFO, from Jan. 30 as banks shy away from the risks of
providing financial benchmarks, a source said this week.
"The changes that we see at the moment, whether it's GOFO no
longer being published, or the move towards exchanges running
the precious metals benchmarks, are indicative of the market
preparing for greater regulation, particularly on gold and
silver," Jonathan Butler, an analyst at Mitsubishi, said.
(Reporting by Jan Harvey; Additional reporting by Thomas Atkins
in Frankfurt; Editing by Veronica Brown, Dale Hudson and David