FSA fines UBS £29.7m over rogue trader

(File photo) UBS has been fined £29.7m for "significant control breakdowns" that allowed a rogue trader to lose $2.3bn in 2011.

Story highlights

  • Regulator criticises bank for having ineffective computer risk control and 'ineffective supervision'
  • UBS has been fined £29.7m for "significant control breakdowns" that allowed a rogue trader to lose $2.3bn in 2011
  • The Financial Services Authority handed out the third largest fine in its history

UBS has been fined £29.7m by the UK watchdog for "significant control breakdowns" that allowed a rogue trader to lose $2.3bn in 2011.

The Financial Services Authority handed out the third largest fine in its history. It criticised the bank for having ineffective computer risk controls and "poorly executed and ineffective supervision" that allowed Kweku Adoboli repeatedly to breach risk limits and book fictitious trades.

Read more: 7 years in prison for former UBS trader Adoboli in fraud case

Mr Adoboli was convicted of fraud last week and sentenced to seven years in jail.

The failings took place in the London branch of UBS, so the FSA and the Swiss regulator Finma investigated jointly and announced the results on Monday morning.

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Read more: UBS shareholders set to rebel over pay

Finma, which does not have the power to fine, said it had appointed an independent investigator to make sure that UBS puts corrective measures in place and implements them fully. The Swiss regulator also plans to hire an audit firm to review whether the measures implemented by UBS have proven effective.

The UK fine is one of the first levied under the FSA's new penalty policy, which seeks to link size of fine to the revenues of the division involved. In this case, UBS was fined 15 per cent of the annual revenue of the global synthetics equities trading division where Mr Adoboli worked. UBS qualified for a 30 per cent discount by settling at the earliest stage of the probe.

Read more: UBS revises loss up to $2.3 billion in unauthorized trade

UBS said: "We have fully co-operated with the regulators' investigations and we now accept their findings and the penalties incurred. We are pleased that this chapter has been concluded and that the regulators have acknowledged the steps UBS has taken since this incident."

The bank also said it had taken "appropriate disciplinary action against staff who did not uphold the high standards we expect" and that employees were being retrained to emphasise risk management. The bank's evaluation and pay systems have also been changed in the wake of the incident.

Tracey McDermott, FSA enforcement director said: "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."

She added: "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."

UBS's penalty is topped only by the £50m paid by Barclays as part of its cross-border settlement with the US and UK for rate manipulation, and the £33m paid by JP Morgan for failing to segregate client assets.

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