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UBS fined £30m over rogue trader UBS fined £30m over rogue trader
(about 9 hours later)
UBS has been fined £30m by the UK's Financial Services Authority – and could see its investment banking activities hampered by the Swiss regulator – after the former trader Kweku Adoboli was jailed for fraud. UBS has been fined £30m by the City watchdog and could see its investment banking activities crimped by the Swiss regulator in the wake of the jailing of its former trader Kweku Adoboli.
Adoboli, a relatively junior City trader who almost destroyed UBS through increasingly reckless illicit deals, was jailed last week for seven years after being convicted of what police describe as the biggest fraud in UK history.Adoboli, a relatively junior City trader who almost destroyed UBS through increasingly reckless illicit deals, was jailed last week for seven years after being convicted of what police describe as the biggest fraud in UK history.
Both regulators criticised the Swiss bank for serious weaknesses in its systems which allowed the 32-year-old to rack up eventual losses of over £1.5bn during three years of secretive, off-the-book trades. "The systems and controls failings revealed serious weaknesses in the firm's procedures, management systems and internal controls," the FSA said on Monday. Both regulators criticised the Swiss bank for serious weaknesses in controls, which allowed the 32 year-old to rack up eventual losses of over £1.5bn during three years of secretive, off-the-book trades. Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority, said: "UBS's systems and controls were seriously defective. 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 (Finma) also reprimanded the bank. "The fraudulent transactions executed by the rogue trader would have been detected sooner if these deficiencies had not existed," it said. The case has been hugely damaging for UBS, prompting the departure of its chief executive Oswald Grübel. During Adoboli's trial, all three of his desk colleagues admitted they knew about the secret account, to varying extents, and his two bosses over the period showed an apparently relaxed attitude to daily trading maximums being exceeded. All five have either left UBS or been sacked. The bank has also clawed back bonuses and withheld compensation from individuals involved, totalling more than £34m.
As part of a series of measures to limit UBS's risk taking, Finma has imposed capital restrictions and an acquisition ban on its investment bank. It will appoint an independent third party to "ensure that corrective measures are successfully implemented". The regulator – which does not have the power to fine UBS – hinted at further sanctions, saying it continued to investigate whether the bank should increase the level of capital it holds. On Monday, the regulators issued damning reports on the bank's control measures, saying compliance at UBS was based too much on trust. Swiss financial market supervisory authority Finma noted that the staff in charge of controlling risk "had too little understanding of the trading activities in question" and were therefore unable to challenge actions taken by Adoboli's desk. It said UBS had sent out misleading signals by awarding pay increases and bonuses to Adoboli, even though he had clearly and repeatedly breached compliance rules.
Both regulators issued damning reports on controls at the investment bank, saying that compliance was based too much on trust. Finma noted that the staff in charge of controlling risk "had too little understanding of the trading activities in question" and were therefore unable to challenge actions taken by Adoboli's desk. It said UBS had sent out misleading signals by awarding pay increases and bonuses to a trader who had clearly and repeatedly breached compliance rules. In a statement, UBS said: "Since the outset of this matter 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."
Tracey McDermott, director of enforcement and financial crime at the FSA, 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. We know from past experience that failures to manage risk properly can cause firms to fail and cause systemic harm." The bank said it had made progress over the year "reinforcing our position as one of the most financially sound global banks". UBS last month announced a global cull of up to 10,000 jobs as it dramatically shrinks its investment bank, which has been rocked by a series of scandals. Earlier this year, the bank suspended some of its most senior traders in connection with an international investigation into the manipulation of Libor. It also took a £227m hit from the botched stock market listing of Facebook, which it blamed on Nasdaq's "gross mishandling" of the flotation.
In a statement, UBS said: "Since the outset of this matter we have fully co-operated with the regulators' investigations and we now accept their findings and the penalties incurred. Some City analysts argued that the FSA fine – which was reduced by 30% because the bank agreed to settle early – was too low considering the extent of failings discovered at UBS. Michael Hewson, senior market analyst at CMC Markets, said: "Our regulator is a bit toothless when it comes to levying fines. If they want to set a deterrent factor with respect to these fines they really need to make them higher – £29.7m is nothing really, it's a slap on the wrist. If you want banks to be more serious about oversight you need to hit them where it hurts and that's in the pocket."
"We are pleased that this chapter has been concluded and that the regulators have acknowledged the steps UBS has taken since this incident." Finma, which does not have the power to fine UBS, imposed capital restrictions and an acquisition ban on its investment bank. It will appoint an independent third party to "ensure that corrective measures are successfully implemented". The regulator hinted at further sanctions, saying it continued to investigate whether the bank should increase the level of capital it holds. But analysts said the impact of these measures would be minimal.
Some City analysts argued that the fine – which was reduced by 30% because the bank agreed to settle early – was too low considering the extent of failings discovered at the bank. Michael Hewson, senior market analyst at CMC Markets, said: "Our regulator is a bit toothless when it comes to levying fines. If they want to set a deterrent factor with respect to these fines they really need to make them higher – £29.7m is nothing really, it's a slap on the wrist. If you want banks to be more serious about oversight you need to hit them where it hurts and that's in the pocket."
This episode is just the latest in a series of problems at UBS's troubled investment bank. Separately, the bank has suspended some of its most senior traders in connection with an international investigation into the manipulation of Libor. Earlier this year, it took a £227m hit from the botched stock market listing of Facebook, which it blamed on Nasdaq's "gross mishandling" of the flotation. UBS is now in the process of dramatically shrinking its investment bank and announced a global cull of up to 10,000 jobs last month.