US prosecutors charged two former UBS traders with taking part in a multi-year scheme to manipulate Libor and other benchmark interest rates, making them the first individuals to be criminally accused in the international scandal.

The charges against the two traders, Tom Hayes and Roger Darin, resulted from a broad investigation into the activities of more than a dozen banks in the setting of prices for Libor and related rates.

A day after UBS agreed to pay $1.5 billion (€1.15 billion) to regulators in the United States, UK and Switzerland, the Hong Kong Monetary Authority (HKMA) said the bank was being probed over its submissions of interbank rates there, raising the risk it could face more fines.

In settling with US, UK and Swiss authorities, UBS not only paid one of the largest fines ever imposed on a bank, its Japanese subsidiary pleaded guilty to one US criminal count of fraud relating to manipulation of benchmark rates, including the yen Libor.

The Japanese subsidiary is where authorities allege much of the manipulation of interest rates occurred, as employees of the bank looked to profit on derivatives trades linked to the rates.

The bank could have more trouble in store in Asia. HKMA, Hong Kong's de facto central bank, said in a statement early Thursday in Asia that it had received information from overseas regulatory authorities about possible misconduct by UBS involving submissions for the Hong Kong Interbank Offered Rate (Hibor) and other reference rates in the region.

UBS is the second large international bank to reach a settlement with US and UK authorities, and other settlements are expected to follow in the next few months. In June Barclays Plc agreed to pay $453 million in fines to settle allegations its employees attempted to manipulate Libor rates.

The investigation and it findings - that attempts to manipulate Libor were fairly widespread in the banking industry - have cast doubts on the reliability of Libor as a benchmark for setting interest rates. The probe has also raised questions about why bank regulators were slow to uncover the manipulation, which Reuters previously reported dated back to at least the late 1990s.

"The bank's conduct was simply astonishing," Lanny Breuer, who heads the US Justice Department's criminal division, said in announcing the settlement.

"Make no mistake - for UBS traders, the manipulation of Libor was about getting rich."

While the bank will hope that the $1.5 billion settlement with regulators in the US, UK and Switzerland will draw a line under its penalties for its role in Libor manipulation, it remains at risk of action from regulators elsewhere for possible rate rigging.

As well as Hong Kong, there is an ongoing investigation in Singapore into the possible manipulation of benchmark lending and foreign exchange rates.

"We continue to work closely with various regulatory authorities to resolve issues relating to the setting of certain global benchmark interest rates. As we are currently in active discussions with these authorities, we cannot comment further," said a spokesman for UBS in Hong Kong.

The Justice Department charged Mr Hayes and Mr Darin with conspiracy, according to a criminal complaint unsealed in US district court in Manhattan yesterday. Mr Hayes was also charged with wire fraud and an antitrust violation.

US and UK investigators portrayed Mr Hayes as a ringleader of sorts for UBS' manipulation of rates.

The two men are both believed to be in Europe, according to a US official. Last week, British police arrested Mr Hayes and two other men in connection with the Libor probe. The two others were Terry Farr and James Gilmour, both of whom worked at interdealer broker RP Martin.

The $1.5 billion UBS penalty is the second largest ever imposed on a bank, exceeded only by the $1.9 billion that HSBC agreed to pay to settle US charges in connection with the laundering of drug cartel money.

"We deeply regret this inappropriate and unethical behaviour. No amount of profit is more important than the reputation of this firm," said UBS Chief Executive Sergio Ermotti.

The criminal complaint against Mr Hayes and Mr Darin also detailed how some former UBS employees are cooperating in the probe, in exchange for a promise that they won't be prosecuted.

The cooperation agreements forged in the UBS case could prove useful to US and UK authorities as they move against other individuals and other big banks.

US prosecutors, for instance, are continuing to investigate the activities of a number of former Barclays derivatives traders based in New York who were dismissed from the bank following an internal investigation into Libor manipulation. So far, none of those former Barclays employees in the United States have been charged with wrongdoing.

Libor and related benchmarks are used to set interest rates for trillions of dollars worth of loans around the world, ranging from home loans to credit cards to complex derivatives.

Authorities said traders could benefit on their derivatives positions by nudging the prices for Libor up just small amounts, as over time the payoffs added up. Already a number of civil lawsuits have been filed in the US by institutional investors claiming they were harmed on trades because of the interest rate rigging.

In legal filings, Britain's Financial Services Authority (FSA) said UBS staff made "corrupt" payments to reward brokers for helping to manipulate rates - expanding the scandal to include bribery.

It said attempts to manipulate Libor and Euribor, its European equivalent, were so widespread that every submission UBS made over a six-year period from 2005 to 2010 was suspect.

At least 45 people at UBS were involved in the rigging, which was discussed in internal chat forums and group emails but never detected by compliance staff, despite five audits.

The FSA said a wide pool of people within UBS considered the manipulation to be a "normal business practice."

In addition to traders trying to move the Libor rate up or down to make money for themselves, senior managers at the Swiss bank directed dealers to keep Libor submissions low during the financial crisis to make the bank look stronger.

In 2006 Mr Hayes told a junior submitter at UBS that he "generally coordinate" with Mr Darin and "skew the libors a bit."

In early 2007, Mr Darin trained another junior submitter and told him the primary consideration for UBS's yen Libor submissions was the requests from Mr Hayes and other UBS traders.

The extent of the wrongdoing was highlighted in a series of emails released by the FSA. The exchanges may indicate how traders and brokers conspired to rig the rate while adopting nicknames such as "Captain Caos," (sic) and calling each other "superman," "hero" or "the three muscateers (sic)."

It is the first time that brokers have been accused of taking bribes to aid the manipulation. ICAP, the world's largest interdealer broker, and rival RP Martin have suspended employees in connection with the probe.

Until the rate-rigging scandal broke, Libor had been ignored by regulators and left to the banks to police. From next year, Britain's FSA will oversee it as part of a major overhaul.

The steep fine for UBS comes even as the bank has cooperated with law-enforcement agencies. The bank said it received conditional immunity from some regulators.

The investigation into UBS's trading shows that the manipulation of the benchmark rates and illicit trading took place over a much longer time period than previously thought with the improper requests extending into June 2010, according to the UBS settlement with the Justice Department.

Reuters