FSA fines UBS bank £29.7 mil­lion for unau­tho­rised trad­ing

The Pak Banker - - Front Page -

LON­DON

The UK Fi­nan­cial Ser­vices Author­ity (FSA) has fined UBS Bank £29.7 mil­lion for sys­tems and con­trols fail­ings that al­lowed an em­ployee to cause sub­stan­tial losses to­talling US$2.3 bil­lion as a re­sult of unau­tho­rised trad­ing.

The trader, Kweku Adoboli, has been con­victed of two counts of fraud by abuse of po­si­tion and sen­tenced to seven years’ im­pris­on­ment. The sys­tems and con­trols fail­ings re­vealed se­ri­ous weak­nesses in the firm’s pro­ce­dures, man­age­ment sys­tems and in­ter­nal con­trols.

On 14 Septem­ber 2011 UBS be­came aware that unau­tho­rised trad­ing had been car­ried out be­tween 1 June 2011 and 14 Septem­ber 2011 (the Rel­e­vant Pe­riod) on the Ex­change Traded Funds Desk (the Desk) in the Global Syn­thetic Eq­ui­ties (GSE) trad­ing di­vi­sion con­ducted from the Lon­don Branch of UBS.

The losses were in­curred pri­mar­ily on ex­change traded in­dex fu­ture po­si­tions. The un­der­ly­ing po­si­tions were dis­guised by the use of late book­ings of real trades, book­ing fic­ti­tious trades to in­ter­nal ac­counts and the use of fic­ti­tious de­ferred set­tle­ment trades. Dur­ing the Rel­e­vant Pe­riod, there was in­suf­fi­cient fo­cus on the key risks as­so­ci­ated with unau­tho­rised trad­ing within the GSE busi­ness con­ducted from the Lon­don Branch. The sig­nif­i­cant con­trol break­downs al­lowed the trad­ing to re­main un­de­tected for an ex­tended pe­riod of time.

The FSA said UBS failed to take rea­son­able care to or­gan­ise and con­trol its af­fairs re­spon­si­bly and ef­fec­tively, with ad­e­quate risk man­age­ment sys­tems and failed to con­duct its busi­ness from the Lon­don Branch with due skill, care and dili­gence.

Tracey McDermott, 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. 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.

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