UBS fined £30m for ‘seriously defective’ trade controls

The Financial Services Authority said it has fined UBS £29.7 million for systems and control failings that allowed trader Kweku Adoboli to cause substantial losses as a result of unauthorised trading.

Adoboli, who was jailed for seven years last week after being found guilty of two counts of fraud, carried out the unauthorised trading between June and September on the Exchange Traded Funds Desk in UBS’ London branch. He incurred losses totalling £1.4 billion.

An investigation by the FSA found "serious weaknesses" in the firm’s security procedures, management systems and internal controls, which Adoboli exploited to conceal his unauthorised trading.

One problem was that the bank’s front office risk system allowed Adoboli to book fabricated trades without entering a specific counter party. Also, there was a time delay being between trades being booked and entered into the front office risk system, allowing Adoboli to manipulate profit and loss.

These failings meant that the Adoboli’s trading desk breached maximum risk limits without being disciplined, the FSA said.

"UBS’s systems and controls were seriously defective," said Tracey McDermott, director of enforcement and financial crime. "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," McDermott said. "We know from past experience that failures to manage risk properly can cause firms to fail and cause systemic harm."

The FSA said the failings were particularly serious as market confidence was put at risk due to the sudden announcement to the market and size of losses announced.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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