UBS AG Fined 29.7 Million Pounds by The FSA

UBS AG Fined 29.7 Million Pounds by The FSA
By twicepix ( [CC BY-SA 2.0], via Wikimedia Commons

 Britain’s Financial Services Authority on Monday fined UBS AG (NYSE:UBS) 29.7 million pounds ($47.6 million) after finding serious weaknesses in procedures, management systems, and internal controls, in the London branch of UBS.

UBS AG Fined 29.7 Million Pounds by The FSA

Britain’s financial regulator fined the Swiss-based bank for failing to restrict a rogue trader, who lost $2.3 billion in the country’s biggest-ever fraud case at a bank. Kweku Adoboli, former UBS trader, was sentenced to seven years in prison last week, after being convicted of two counts of fraud.

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The regulator alleged that the bank failed to detect significant increases in profit reported by the Exchange Traded Funds Desk in London, where Adoboli worked. The agency said that the revenues from the exchange-traded-funds desk reached $63.7 million in the first half of 2011, compared with $11.7 million for all of 2010, and were not analyzed in detail.

“UBS AG (NYSE: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,” said Tracey McDermott, the FSA’s director of enforcement and financial crime. “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 agency also found that UBS’ computerized trading system was ineffective in detecting unauthorized trades. Apart from this, it also found inadequacies in the Front-office supervision and in the desk involved in the fraud. The regulator claims that desk’s supervisor and line manager were made aware of breaches in risk limits on at least four occasions between June and July 2011, but they fail to take required action.

 “Front office managers showed lenience to traders and had little interest in controlling their activities,” Finma said in the report. “The emphasis on profits came at the expense of control and sound risk management.”

The Financial Services Authority also said, that had UBS AG (NYSE:UBS) not cooperated in the investigations, the fine could have been 30 percent higher. The agency appreciated the steps taken by the bank against the alleged employees, including reclaiming bonuses and other deferred compensation amounting to more than 34 million pounds.

 “We are pleased that this chapter has been concluded and that the regulators have acknowledged the steps UBS AG (NYSE:UBS) has taken since this incident,” the bank said.

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