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FSA fines UBS £29.7m over rogue trading
by Daniel Grote on Nov 26, 2012 at 07:17
The Financial Services Authority (FSA) has fined UBS £29.7 million for systems and controls failings that allowed rogue trader Kweku Adoboli to amass losses of $2.3 billion (£1.4 billion).
The regulator said the failings revealed 'serious weaknesses in the firm's procedures, management system and internal controls'. The fine has been discounted from £42.4 million as a result of early settlement.
The FSA and Swiss financial regulator Finma had announced a joint probe shortly after UBS revealed the losses. Adoboli (pictured) was last week jailed for seven years after he was found guilty of two counts of fraud.
The regulator said that during the period when Adoboli amassed the losses, UBS did not place enough focus on the risks associated with unauthorised trading within its Global Synthetic Equities division, which led to Adoboli's trading to remain undetected.
The FSA highlighted the following failings at UBS:
- its computerised system to assist in risk management was not effective in controlling the risk of unauthorised trading;
- the trade capture and processing system had particular deficiencies, which Adoboli was able to exploit to conceal his unauthorised trading;
- the operations division supporting the Global Synthetic Equities business were focused on efficiency rather than risk control;
- there was inadequate supervision;
- the Global Synthetic Equities desk breached risk limits without being disciplined;
- UBS did not investigate the substantial increase in profits from the division;
- before 18 August 2011, profit and loss suspensions requested by Adoboli were accepted without challenge.
Tracey McDermott, FSA director of enforcement and financial crime, said UBS's systems and controls were 'seriously defective'. '
UBS failed to question the increasing revenue of the desk and failed to ensure that there was a corresponding increase in the controls in place over the desk,' she said.
'As a result Adoboli, a relatively junior trader, was allowed to take vast and risky market positions, and UBS failed to manage the risks around that properly. We know from past experience that failures to manage risk properly can cause firms to fail and cause systemic harm.'
UBS agreed to settle at an early stage, qualifying for a 30% discount to its fine, which would have been £42.4 million.
The FSA said that in setting the level of the fine, it had taken into account the revenues generated by the Global Synthetic Equities desk, and the £8 million fine levied on UBS in 2009 for systems and controls failures in its wealth management business. It said UBS had failed to consider whether the issues identified by that fine were applicable to its other business areas.
UBS enlisted an independent firm to investigate the rogue trading, at a cost of £16 million,and has taken disciplinary action against staff involved, clawing back bonuses and withholding deferred compensation totalling more than £34 million.
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by Michelle Abrego on Mar 11, 2014 at 10:45