By Mark Scott
Britain's Financial Services Authority fined UBS £29.7 million on Monday for failing to prevent a $2.3-billion loss caused by a former trader.
The fine, the equivalent of $47.5 million, of was one of the largest penalties ever issued by the authority.
UBS was found to have had serious weaknesses in the internal controls of its investment banking unit. The failings allowed Kweku M Adoboli, a former trader at the bank, to rack up a multibillion-dollar trading loss last year after he carried out a series of unauthorised trades.
Adoboli, 32, received a seven-year jail sentence last week on two counts of fraud in connection with the loss for abusing his position at UBS from 2008 to 2011. Adoboli was found not guilty on four counts of false accounting.
Britain's Financial Services Authority (FSA) fined Swiss bank UBS for failing to prevent a colossal loss caused by former trader Kweku M Adoboli.
$47.5mn (£29.7mn) One of the largest penalties ever issued by the authority
Adoboli, 32, received a seven-year jail sentence last week on two counts of fraud in connection with the loss for abusing his position at UBS from 2008 to 2011
The Financial Services Authority had been working with its Swiss counterpart in a yearlong investigation of UBS's trading loss.
British and Swiss regulators said on Monday that UBS had failed to manage the risks of its London-based traders. The lack of supervision from top managers allowed the unauthorised trading to continue for an extended period of time, according to statements from the authorities.
"UBS's systems and controls were seriously defective," Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority, said in a statement. "Failures of this type in firms of the size and standing of UBS not only damage the firms concerned but also wider confidence in the integrity of the markets and the financial system."
The Swiss Financial Market Supervisory Authority said on Monday that Adoboli's activities would have been detected earlier if UBS had more stringent risk management in place in its London operations.
The Swiss regulator, which does not have the power to levy fines, said it was appointing an independent investigator to oversee improvements in UBS's risk management systems. Authorities also are considering whether UBS should have higher capital requirements to cover potential losses on its trading activities.
The supervisory authority had already imposed restrictions on the bank, including the need to receive approval from the authorities for new areas of trading activity at UBS's investment bank.
UBS said it accepted the decisions from the British and Swiss regulators. The bank said it had taken disciplinary action against employees involved in the scandal, adding that it had also taken steps to reduce its exposure to complex trading.
"We are pleased that this chapter has been concluded," UBS said in a statement. Shares in the Swiss bank fell 0.7 per cent in morning trading in Zurich on Monday.
The Financial Services Authority fined the British bank Barclays £59.5 million this year in connection with the manipulation of the London interbank offered rate, or Libor. And JPMorgan Chase was fined £33.3 million in 2010 for failing to protect British clients' money from 2002 to 2009.
Because UBS agreed to settle with the British authorities, it received a 30 per cent reduction on its overall fine. Without the discount, the firm would have been fined £42.4 million. UBS also paid an £8-million fine to British regulators in 2009 after an employee in the firm's London wealth management unit carried out unauthorised trades with client money. The Swiss bank is planning to overhaul of its banking operations, announcing last month that it would eliminate 10,000 jobs in its investment banking unit, with almost half of the losses expected to be in London.
The move is an effort to refocus UBS on its profitable wealth management business instead of risky trading activity.
© 2012 The New York Times News Service