News Column

UBS Fined Over 'Defective Controls' in Rogue Trader Case

Nov. 26, 2012

Swiss Bank UBS was fined 29.7 million pounds (47.6 million dollars) Monday for failing to prevent fraudulent deals by a rogue trader at its London branch which caused losses of an estimated 1.4 billion pounds.

The fine was imposed by Britain's Financial Services Authority (FSA) just a week after Kweku Adoboli, a 32-year-old trader, was sentenced to seven years imprisonment for fraud.

The fine was discounted from 42.4 million pounds for early settlement, said the FSA.

"UBS's systems and controls were seriously defective. 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," said the FSA.

The court heard that Ghanaian-born Adoboli at one point exposed the bank to losses of up to 12 billion dollars by repeatedly exceeding his multi-million-pound trading limit, failing to hedge trades, inventing fictitious deals and faking records to cover his tracks.

During the trial, Adoboli admitted the losses, but said he did not act alone and was "pressurized" by superiors into taking risks. The fraudulent activities relate to the period between 2008 and 2011.

The losses were incurred primarily on exchange traded index future positions in the bank's global synthetic equities division, where "significant deficiencies" allowed Adoboli to conceal his unauthorized trading, said the FSA.

Meanwhile, Switzerland's Financial Market Supervisory Authority (FINMA) Monday also highlighted "serious deficiencies in risk management and controls at UBS's Investment Bank".

"The fraudulent transactions executed by the rogue trader would have been detected sooner if these deficiencies had not existed," said FINMA in a statement released in Bern.

As a result, the organization had ordered capital restrictions and an acquisition ban on the investment bank with immediate effect.

Any new, important business initiative taken by the bank must be approved by FINMA, which also appointed an independent investigator to monitor whether the steps taken by UBS to implement the measures are effective.

"FINMA is also further examining whether UBS must increase capital backing for its operation risks," said the statement.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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