The UK's Financial Services Authority has fined UBS £29.7 million for serious failings that allowed rogue trader Kweku Adoboli to rack up £1.4 billion in losses from unauthorised trading.
Adoboli, who worked on the Swiss bank's Exchange Traded Funds desk was last week found guilty of fraud and sentenced to seven years in prison. The losses, incurred over a four-month period in 2011, were concealed by the use of late bookings of real trades, booking fictitious trades to internal accounts and the use of fictitious deferred settlement trades.
In levying the third-largest fine in its history, the FSA cited serious weaknesses in the Swiss bank's procedures, management systems and internal controls.
The FSA says that "significant control breakdowns" allowed the trading to remain undetected for an extended period of time. The watchdog cited a lack of integration between the bank's computerised dealing, trade capture and position keeping systems, inadequate front office supervision and a culture that prized efficiency over risk management. The bank was also chided for allowing traders to over-ride risk limits and for turning a blind eye to reports of substantial profits that could not be explained by the end-of-day risk positions.
Tracey McDermott, the FSA's director of enforcement and financial crime, says: "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."
In setting the level of the penalty, which represents 15% of the revenue of the bank's synthetic equities division, the FSA took into account the fact that in November 2009 UBS was fined £8 million for failings in relation to the systems and controls around the international wealth management business.
UBS agreed to settle at an early stage and therefore qualified for a 30% discount under the FSA's executive settlement procedures. Were it not for this discount, the fine would have been £42.4 million.
UBS also agreed to engage an independent firm to conduct an investigation into the unauthorised trading incident, at a cost of £16 million.
The FSA revealed that the bank has since clawed back £34 million from employees who were involved in the events which gave rise to the breach, including repayment of bonuses and withholding 50% of deferred compensation packages.