UBS trader Kweku Adoboli, has been convicted in the UK of two counts of fraud by abuse of position and sentenced to seven years’ imprisonment as a result of the US$2.3 billion loss from his unauthorised trading between June and September 2011.
In his trial Adoboli’s counsel argued that he was an “unlucky scapegoat for a company culture which encouraged risk-taking so long as it generated profits and whose schemes were well known to colleagues and superiors”. (See this Guardian article)
The prosecution argued he was an out of control gambler.
Should UBS be held separately accountable? The UK Financial Services Authority (FSA) thinks so.
In addition to its US$2.3 billion loss and reputational damage, the FSA has fined UBS AG (UBS) £29.7 million (discounted from £42.4 million for early settlement) for systems and controls failings that allowed Adoboli to carry out his fraud. (See FSA Release)
The FSA concluded that UBS’s systems and controls failings revealed serious weaknesses in the firm’s procedures, management systems and internal controls.
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.
The FSA believes that 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.
In setting the level of the penalty, the FSA took into account the revenue generated by the business area where the poor controls occurred.
It also took into account the fact that in November 2009 UBS was fined £8 million for failings in relation to the systems and controls around the international wealth management business conducted with non-UK resident clients in the London branch of UBS. The FSA expects firms to consider whether the issues identified in an enforcement action are applicable to other business areas and whether remedial action is necessary, UBS failed to do this.
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Posted 4th December 2012 by admin in Compliance, Financial Services, Risk Management