Compliance

FSA Fines UBS, Swiss Regulator Keeps Bank Under Watch After Rogue Trader Loss

Tom Burroughes, Group Editor, London, 26 November 2012

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The UK financial regulator has fined UBS £29.7 million ($47.6 million), while the Swiss financial regulator is scrutinising steps taken by
UBS after the Alpine state’s largest bank suffered a $2.3 billion trading loss
inflicted by a rogue trader, who was jailed last week. UBS has been put under restrictions over risk-taking at the investment bank, which is also banned from making new acquisitions.

The Financial Services Authority, and Switzerland's FINMA issued a statement today about the Zurich-listed bank after
a UK
court last week convicted Kweku Adoboli, who had worked on UBS’ “Delta One”
desk, of losing the money due to unauthorised trading. He was jailed for seven
years.

The FSA fine on the bank was discounted from £42.4 million for early settlement; the fine was for "systems and controls failings that allowed an employee to cause substantial losses", the FSA said. "The
systems and controls failings revealed serious weaknesses in the firm’s
procedures, management systems and internal controls," it said.

Among the failings discovered by the FSA were:
The
computerised system operated by UBS to assist in risk management was
not effective in controlling the risk of unauthorised trading.
The
trade capture and processing system had significant deficiencies, which
Adoboli exploited in order to conceal his unauthorised trading.

Additionally, the FSA found that the UBS
system allowed trades to be booked to an internal counter-party without
sufficient details, there were no effective methods in place to detect
trades at material off-market prices and there was a lack of integration
between systems.There
was an understanding amongst personnel supporting the desk that the operations division’s main role was that of facilitation. Their main
focus was on efficiency as opposed to risk control and they did not
adequately challenge the front office.
There was inadequate front office supervision. The supervision arrangements within GSE were poorly executed and ineffective, it said.

Swiss statement

“The proceedings launched by the Swiss Financial Market
Supervisory Authority FINMA into UBS's trading losses in London have highlighted serious deficiencies
in risk management and controls at UBS' investment bank,” it said.

“In FINMA's view, the fraudulent transactions executed by
the rogue trader would have been detected sooner if these deficiencies had not
existed. As soon as the unauthorised trading activities became known, FINMA
imposed preventive measures to limit UBS's operational risks. Now that its
proceedings have been completed, FINMA is appointing an independent third party
to ensure that corrective measures are successfully implemented,” it said.

UBS has already moved to reduce its risk exposures at the
investment bank, putting even more focus on the firm’s flagship wealth
management business.

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