UBS banker wins appeal against FSA

Last Updated: Mon, Apr 23, 2012 20:00 hrs

The national financial watchdog has lost a key test of its powers to punish bankers for alleged supervision failures when a fine on a senior UBS banker was overturned by a court.

In a rare successful appeal against a fine imposed by the regulator, John Pottage was cleared of misconduct by Britain's Upper Tribunal over compliance failings that occurred under his supervision at UBS's British wealth management business, which he ran.

The Financial Services Authority had sought to fine him 100,000 pounds ($161,000) for alleged failings as the unit's boss, even though he was not personally involved in the compliance issues. "We think that the actions that Mr Pottage in fact took prior to July 2007 to deal with the operational and compliance issues as they arose were reasonable steps," the Upper Tribunal said in its ruling, seen by Reuters.

The FSA said it accepted the decision, but was undeterred from pursuing disciplinary action against senior management.

"We have always recognised that pursuing disciplinary action against senior management in large firms is very challenging," said Tracey McDermott, acting director of enforcement and financial crime at the FSA.

"But we also believe strongly that senior management must take responsibility for the businesses they run,"

The case has been watched by rival banks as a potential precedent-setter in terms of how far up the ranks responsibility for failings can go.

Every situation is judged on a case-by-case basis, however, and the ruling may not preclude other bankers in senior roles being held responsible for the goings-on in their businesses.

"I'm not sure there's a great deal of succour in this decision for someone in a similar senior management position. The Pottage case is historic," said Harvey Knight, head of UK financial services at law firm Withers, which was not involved in the case.

He said records of interviews for people taking positions of "significant influence", now a standard procedure, could form the backing to these kinds of cases in future, while the responsibility of senior managers is now far more in the frame.

"This all predates the financial crisis and the regulatory reforms that have come in since," he said of the Pottage case.

UBS itself is still embroiled in a separate investigation after a rogue trader caused a $2.3 billion loss last year. The results of that probe are still not known, however.

Although wins against the FSA are rare, other senior bankers are following this route. Prominent JP Morgan dealmaker Ian Hannam was fined 450,000 pounds for market abuse in early April, a punishment he is appealing.

Pottage has had the backing of UBS throughout the case and is still an employee of the firm in Switzerland.

The bank itself was fined in relation to the control weaknesses at the wealth management division, and has said the failings were remediated by June 2009. The firm was an interested party in the Pottage case, not a defendant.

"We are pleased with the outcome and that this matter is now closed," UBS said in a statement.

The Tax and Chancery Chamber of the Upper Tribunal, which has a financial services segment, is the standard port of call for appealing FSA decisions. Before the Pottage case, the FSA had only lost twice.

From this year, the Upper Tribunal has had a former FSA official among its judges -- Tim Herrington, former chairman of the regulatory decisions committee (RDC), which oversees verdicts on disciplinary action.

"It remains to be seen whether his influence will encourage the Tribunal to rule more consistently in line with the RDC," said Knight at Withers, referring to whether bankers trying to appeal might find favour outside of the FSA.

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