Financial watchdogs find failings at UBS

UBS said it would accept the regulator's decisions Ex-press

Switzerland's financial regulator has found "serious deficiencies in risk management controls" at UBS's investment unit after last year’s $2.3 billion (SFr2.14 billion) rogue trading loss. The bank said it accepted the findings.

The British Financial Services Authority also announced on Monday that it was imposing a £29.7 million (SFr44.2 million) fine on UBS for “systems and controls failings”.

The Swiss Financial Market Supervisory Authority (Finma) launched an investigation with Britain’s financial regulator in September last year to review the control mechanisms at the bank that led to Kweku Adoboli, a trader on UBS’s “Delta One” desk, losing $2.3 billion for the bank. Adoboli was convicted of fraud and jailed for seven years last week.

The British FSA said “significant control breakdowns allowed the trading to remain undetected for an extended period of time”.

“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,” said Tracey McDermott, the FSA’s director of enforcement.

The agency said UBS failed to investigate substantial increases in profit reported by the Exchange Traded Funds Desk in London where Adoboli worked.

The British regulator catalogued a series of other failures, notably that UBS’ computerized trading system was ineffective in detecting unauthorized trades.

It also found that the desk involved in the fraud was not disciplined for breaching daily trading limits and that the processing system allowed trades to be booked without sufficient information. Front-office supervision was also inadequate, it said.

The fine could have been 30 per cent higher had UBS not cooperated, the regulator added.

More controls

Finma announced on Monday it would appoint a third party to ensure that corrective measures were implemented. 

“The fraudulent transactions executed by the rogue trader would have been detected sooner if these deficiencies had not existed,” Finma said in a statement.  
 
UBS said on Monday it was relieved the investigation was now over and that the financial watchdog was satisfied with the measures implemented by the bank since the trading loss was revealed.
  
Finma said it had decided to take additional steps to beef up controls at the bank, including engaging an audit firm at a later date to review whether the steps taken by UBS were effective.
 
The Swiss regulator is also examining whether UBS must increase its capital backing for its operational risks.
 
The steps come on top of corrective measures taken as soon as the trading loss was discovered, which included a ban on new acquisitions at UBS’s investment bank and a prior approval from Finma for any new business initiatives.