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FSA fines UBS £29.7m over rogue trading

by Daniel Grote on Nov 26, 2012 at 07:17

FSA fines UBS £29.7m over rogue trading

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.

7 comments so far. Why not have your say?

Chartered Mark

Nov 26, 2012 at 07:26

Well that's the FSA's Christmas bonus pot and party paid for then.

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Gordon S

Nov 26, 2012 at 07:56

So why didn't the FSA checks reveal this shortcomings during their visits.

This years fines amount to many millions, what happens to this money ?

Shouldn't it be directed towards running the FSA and funding the likes of Arch Cru investor compensation which is another one the FSA should have caught but let slip through their net.

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One is afraid

Nov 26, 2012 at 08:00

@ Chartered Mark

Apologies, must disagree. You may well be right but they will only social spend after having:-

- Reduced Adviser FSA fees

- Given a bit to FSCS to help reduce Adviser fees

- Set aside a golden goodbye for the new MAS Chief Exec in next few months.

- Put aside some for 'RDR and a half' (not enough for RDR 2)

Mind you, if they had any sense they would start buying into some Adviser firms then change the rules again to suit.

After all, don't you know it's (nearly) Christmas

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Simon Webster1

Nov 26, 2012 at 08:54

A fraud was perpetrated against UBS, who had reason to suppose they had a robust system in place - so is fining them in these circumstances even justified? No system is foolproof as the FSA's many screw ups amply demonstrate...

But it is then typical of the FSA to punish the innocent - management screws up shareholders & customers pay. Fine the directors.

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Monday Morning

Nov 26, 2012 at 09:37

I seem to recall that George Osbourne has already announced that the Banks should not benefit from fines made and that this money has been earmarked for use outside the FSA.

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Green Eyed Monster

Nov 26, 2012 at 11:22

Surely there was some IFA at fault here?

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John Frink

Nov 26, 2012 at 13:35

Ohh £30m, that will teach UBS!

C'mon FSA - this is the equivalent of fining the man on the street a tenner, it's an irrelevant, laughable amount as a sanction.

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