UBS AG (UBSN), Switzerland's biggest bank, said it may be hit with "material" penalties after authorities investigating alleged manipulation of foreign exchange markets started settlement talks.

"The terms proposed include findings that UBS failed to have adequate controls in relation to its foreign-exchange business that were adequate to prevent misconduct," the Zurich-based bank said today in a offer prospectus to shareholders. It didn't identify the regulators involved.

The U.K.'s Financial Conduct Authority is in talks with banks including Barclays PLC (BARC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and UBS to settle investigations into allegations of currency benchmark rigging as soon as November, people familiar with the probes have said. Fitch Ratings said in a statement on Sept. 15 that uncertainty over fines and possible restrictions is "one of the biggest risks" for banks, when calling potential penalties on misconduct "material and widespread."

"Foreign exchange is one of the big remaining issues" for UBS, said Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux with a hold recommendation on the shares. "Settling early would probably be a good idea."

Huw van Steenis, an analyst at Morgan Stanley in London, said in a note that "several of the key" banks in the U.S. and Europe could face as much as $2 billion in fines over currency manipulation, with possible settlements in the fourth quarter.

UBS said while it's possible that other authorities investigating the matters may also seek to start settlement discussions "in the near future," it can't predict if a settlement would be reached or if it would be on the terms described. The bank has taken and will take "appropriate actions" with respect to certain personnel as a result of its internal review, which is continuing.

The Swiss financial regulator, the Swiss Competition Commission, the U.S. Department of Justice, the U.S. Commodity Futures Trading Commission, the U.K. Serious Fraud Office and the Hong Kong Monetary Authority are investigating currency rigging in addition to the FCA.

UBS made the remarks as part of an offer prospectus to shareholders to exchange their shares for those in UBS Group AG, a holding company created to meet regulator demands for separate legal entities in different regions.

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