John Pottage, former chief executive officer of UBS’s wealth management unit in the UK, failed to heed warning signs that risk controls in the division were ineffective before an unauthorised trading loss was unearthed, the Financial Services Authority has told a court, Bloomberg reported.

Pottage, now a senior executive at the bank’s headquarters in Zurich, should have started a review of controls after a client money breach, a payment fraud, and other failings were discovered, the FSA said in court papers, according to the report. He also should have done an “adequate initial assessment” of the unit’s controls after becoming CEO, a lawyer for the FSA said.

Pottage’s actions constituted a regulatory breach, FSA lawyer Andrew Hochhauser said in the first day of closing arguments in the case, where the ex-CEO is challenging a £100,000 ($156,000) fine. The case is the first time the regulator has sought to penalise an executive for oversight failures.

Pottage failed to ensure that the division had controls in place to prevent employees from making as many as 50 unauthorised trades a day with funds from at least 39 customer accounts, the FSA alleges. UBS compensated customers with a total of £42 million, and was fined £8 million by the FSA in 2009. The hearing over the fine against Pottage began in London in November.

Bankers and former staff at UBS are already challenging FSA actions against it.

Sachin Karpe, the former head of the India desk at the unit, is contesting a £1.25 million fine for unauthorised trading and helping a client use an offshore investment fund in violation of Indian law. Laila Karan, a former client advisor on the desk, is also challenging a £90,000 fine and a ban from working in the industry by the FSA for failing to notify the lender about Karpe’s actions.

Another banker on the Asia-2 desk, Jaspreet Ahuja, agreed to pay a £150,000 fine last month for his advice with Karpe on the illegal offshore fund for an Indian client.

A spokesman for UBS said the bank “has acknowledged that there were weaknesses in certain aspects of Wealth Management UK’s control environment” and cooperated with the FSA in its actions against Karpe, Karan and Ahuja. UBS is supporting Pottage in challenging the fine against him.

In June, 2009, this publication remarked that while Pottage had left his then-post as head of UK wealth management, that there had been no announcement by UBS as to his future plans or involvement at the firm, other than to say he was "still employed" there.

Last September, meanwhile, the bank’s chief executive Oswald Grübel resigned after the Swiss bank reported a $2.3 billion loss caused by unauthorised trading in its investment banking arm.

The case continues.