Investment bank UBS has received a £29.7 million (approximately $47.5 million) fine from the UK Financial Services Authority (FSA), for "significant failings" regarding a rogue trading incident in 2011.
The FSA, in announcing the fine, attributed UBS' culpability to systems and control lapses, which allowed Kweku Adoboli, 32, to disguise trades that eventually amounted to losses of around $2.3 billion at the Swiss institution. Adoboli, who worked on the Delta One desk at UBS' London offices, was found guilty of two counts of fraud and four separate counts of false accounting at Southwark Crown Court, London, last week. He was sentenced to seven years' imprisonment.
Specifically, the FSA cited that UBS' computerized risk management system was not effective in preventing unauthorized trades, the trade capture and processing system was inefficient and contained exploitable loopholes, and the bank's operations department was weak in challenging the front office. In addition, the indictment also suggests that the supervisory regime in the front office was poor, as Adoboli's desk breached risk limits without disciplinary action, and there was a failure to reconcile the profitability of the desk with its reported end-of-day positions. Profit and loss suspensions, requested by Adoboli to the tune of $1.6 billion, also went unchallenged.
Adoboli, who worked on the Delta One desk at UBS' London offices, was found guilty of two counts of fraud and four separate counts of false accounting at Southwark Crown Court, London, last week. He was sentenced to seven years' imprisonment.
"UBS' systems and controls were seriously defective," says Tracy McDermott, director of enforcement and financial crime at the FSA. "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. 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."
The fine was discounted from £42.4 million (approximately $67.9 million) due to early settlement. The bank also agreed to retain an independent consultant for review purposes, and withold varying levels of compensation from relevant employees.
The fine rounds off an unpleasant period for UBS. In addition to drastically reducing numbers in its investment bank earlier this month, the firm's CEO, Oswald Gruebel, was forced to resign in the wake of the Adoboli scandal. The FSA investigation was conducted alongside the Swiss Financial Market Supervisory Authority (Finma), which has also published its own findings.
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