The settlement involves U.S. and British authorities and is meant to cover malfeasance that spanned from 2005-10, The New York Times reported.
Authorities contend throughout that period, the bank falsified reports that were used to set the Libor or London interbank offered rate, which is the average rate banks charge when they loan money to other banks.
The settlement approaches the record $1.9 billion fine announced last week against HSBC for money laundering.
Last summer, British bank Barclays announced it would pay $450 million to settle charges it had attempted to manipulate the Libor. Several other major banks are also under investigation for manipulating rates.
The Libor is used as a benchmark that determines the interest rate on trillions of dollars in commercial and consumer loans.
Authorities said supervisors at a UBS unit in Japan "inappropriately gave guidance to those employees charged with submitting interest rates, the purpose being to positively influence the perception of UBS' creditworthiness."
Authorities said the interest rates were changed in an attempt to squeeze more profits from loans, but also to make the bank appear healthier than it was, as low interest rates are a sign of strength.
With that reasoning, if a bank's borrowing costs are low, then it would be assumed the bank is strong, an image the bank tried to project during the financial crisis.
"The findings we have set out in our notice today do not make for pretty reading. The integrity of benchmarks are of fundamental importance to both U.K. and international financial markets. UBS traders and managers ignored this," said Tracey McDermott, the enforcement director for the Financial Services Authority, the bank regulator in Britain.
In a statement, UBS said it had cooperated with the investigation, which reportedly involves more than a dozen major banks.
"We discovered behavior of certain employees that is unacceptable. We deeply regret this inappropriate and unethical behavior. No amount of profit is more important than the reputation of this firm, and we are committed to doing business with integrity," UBS Chief Executive Officer Sergio Ermotti said in a statement.
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