UBS Fined £29.7 Million Over Rogue Trader Kweku Adoboli

on Nov 26, 2012
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The Financial Services Authority (FSA) has fined the Swiss bank UBS AG £29.7 million for “systems and controls failings” which allowed Kweku Adoboli, a former ETF trader at the bank, to cause massive losses of $2.3 billion (£1.44 billion) through unauthorised trading.

“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.” said Tracey McDermott, FSA’s director of enforcement and financial crime.

According to Britain’s watchdog, major failings of UBS include an ineffective computerised system for risk management, inadequate front office supervision and lack of investigation as to why the ETF desk was recording substantial increases in profitability.
For allowing the largest unauthorised loss in Britain to happen, UBS received the FSA’s third largest fine in its history. The Zurich-based bank agreed to settle early and therefore qualified for a 30 percent discount under the FSA’s executive settlement procedures. Otherwise the fine would have been around £42.4 million. UBS has already spent £16 million in order to investigate the unauthorised trading incident.

**FINMA to Closely Monitor UBS**
The Swiss Financial Market Supervisory Authority FINMA, which does not have the power to fine, said it will monitor UBS’ investment bank closely for the foreseeable future and may ask it to raise fresh capital in order to improve its control systems.
!m[Swiss Watchdog Warns It Will Be Closely Monitoring the Bank](/uploads/story/899/thumbs/pic1_inline.png)After carrying out its own investigation, FINMA noted “serious deficiencies in risk management and controls”, which allowed rogue trader Kweku Adoboli to circumvent the rules for a long time. “The measures ordered by Finma include capital restrictions and an acquisition ban on the investment bank, and any new business initiative it plans must be approved by Finma,” the regulator said in a statement.

FINMA also admitted that UBS has introduced a large number of organisational measures to strengthen its control capabilities and risk management as a response to the discovery of the rogue trading activity. The bank took disciplinary action against employees who were involved in the events, including clawing back bonuses and withholding 50 percent of their deferred compensation totalling more than £34 million. According to a September announcement, risk management was added to all employees’ performance objectives.

“We have been absolutely determined to learn from this incident,” Sergio Emotti, chief executive, said in a memo to employees. “We have improved internal monitoring and controls to ensure that something like this does not recur, or if it does, to ensure that it is detected and dealt with swiftly.”
Kweku Adoboli was sentenced last week to seven years in jail, convicted of two counts of fraud by abuse of position and acquitted on four counts of false accounting. Mr Adoboli argued in his defence that everything he did was because of his “love” for the bank and that his colleagues and managers knew about the scheme but were turning a blind eye as long as his desk was profitable.
Despite the rogue trader fiasco, shares in UBS have surge by almost 20 percent since it announced it will be shutting down a large portion of its fixed-income business. The stock closed at $15.86 on Friday.

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