The announcement could come as early as Monday, this person said.

Such a penalty, more than double the $450 million fine levied on British bank Barclays (BARC.L) in June for related conduct, indicates the scope of the misconduct by UBS could dwarf that exposed by Barclays' settlement.

Barclays in June admitted it improperly took trading positions into account when reporting interest rates used to calculate the Libor benchmark, touching off a firestorm that forced its chairman and chief executive to quit.

The settlement also prompted a political and public backlash against standards in banking across Europe and the United States.

The Libor benchmarks are used for trillions of dollars worth of loans around the world. Tiny shifts in the rate, compiled from daily polls of bankers, could benefit dealers in complex products.

While details in the Barclays settlement showed traders brazenly gaming the system, the expected size of the UBS settlement indicates that Barclays may prove to be far from the worst offender and that other settlements may also be larger than Barclays'. Overall, more than a dozen banks have been caught in the international inquiry.

UBS declined to comment. The agencies expected to be involved in the settlement, including Britain's Financial Services Authority and the U.S. Department of Justice and the Commodity Futures Trading Commission all declined to comment.

UBS has said it set aside 6.5 billion swiss francs ($7.04 billion) in reserves, but has not broken out how those funds are earmarked.

CONDITIONAL LENIENCY

The steep fine that UBS has agreed to pay is a surprise because the bank, since 2011, has cooperated with law-enforcement agencies in their probes, according to regulatory filings and court documents.

The bank disclosed it received conditional immunity from the Justice Department's antitrust division and other international competition authorities, which suggests the bank's $1 billion payout could have been higher without that leniency.

Some clues to UBS's alleged central role in the Libor conspiracy were included in documents filed earlier this year by the Canadian Competition Bureau, which investigates anti-competitive activity.

The documents describe how a "cooperating party" tried to artificially move yen Libor. UBS is the cooperating bank, people familiar with the situation have said.

Those documents allege that a trader at the bank — called "Trader A" - contacted traders at four other banks. On one occasion, "Trader A" instructed a trader at another bank on what Libor submission to make.

It is unclear if UBS will resolve the Canadian probe as part of the imminent settlement.

Authorities are also investigating the actions of individuals. This week British police and anti-fraud officers made the first arrests in connection to the Libor probe, detaining a former trader and two other men, sources said.

One of those arrested was former UBS and Citigroup (C.N) trader Thomas Hayes, according to a source familiar with the situation. The two others worked at interdealer broker RP Martin, according to a separate source.

TORRID TIME FOR UBS

The fine will mark another blow to UBS, which has had a tough 18 months after suffering a $2.3-billion loss in a rogue trading scandal, management upheaval and thousands of job cuts.

"I'm not sure how much more reputational damage can be done to UBS," said Chris Wheeler, analyst at Mediobanca in London. "They are rebuilding that slowly, but it won't help the wealth management business when you see this as a headline."

Banks are keen to put such fines behind them as they attempt to rebuild credibility among politicians, the general public and investors following the financial crisis which forced taxpayers to bail out the banking system.

But the fresh spate of probes and settlements are putting banks' malpractice back to the forefront.

HSBC (HSBA.L) on Tuesday reached a $1.92 billion settlement with U.S. authorities over money laundering, the highest ever fine on a bank, a day after another London-based bank, Standard Chartered (STAN.L), agreed to pay $327 million for violating U.S. sanctions against Iran, Sudan and other states, adding to an earlier $340 million it paid in a related case.

Deutsche Bank (DBKGn.DE), Germany's flagship lender, was raided on Wednesday by about 500 German tax inspectors and police, who arrested five staff in a probe linked to a tax scam involving the trading of carbon permits.

Britain's Royal Bank of Scotland (RBS.L) is also expected to reach a settlement on Libor manipulation shortly.

Investigators are assessing whether banks used responses to the daily survey of the rates they would offer to other banks to try to nudge Libor, perhaps by only a few hundredths of a percentage point. Such a move could still benefit their own trades in bonds or more complex deals linked to that rate.

Banks found guilty also face civil lawsuits from those they traded with. Some borrowers complain they paid more interest than they should have, although others may have paid less.

Reuters' parent company Thomson Reuters Corp collects information from banks and uses it to calculate Libor rates according to specifications drawn up by the British Bankers Association (BBA).

(Additional reporting by Steve Slater in London, Martin de Sa'Pinto in Zurich and Aruna Viswanatha in Washington and Carrick Mollenkamp in New York; Editing by Alexander Smith, Alastair Macdonald and Andrew Hay)

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