BRITAIN'S financial regulator slapped an £8 million fine on Swiss banking giant UBS yesterday for failing to stop former employees making unauthorised trades with customer money – up to 50 a day.
It is the third-biggest Financial Services Authority (FSA) fine ever, in a clear sign of regulatory toughness in the wake of the banking crisis.
UBS had exhibited systems and controls failures that enabled four employees to carry out these trades
on at least 39 accounts, the FSA said.
Yesterday's fine is only topped by the £17m the regulator fined oil giant Shell in 2004 for mis-stating its oil reserves, and £13.9m levied on Citigroup bank for lax control systems in allowing a controversial eurobond trade in 2005.
It comes days before FSA chief executive Hector Sants is due to give a keynote speech in the City on the authority's tougher approach to regulation.
FSA director of enforcement and financial crime Margaret Cole said: "The penalty, one of the largest fines we have levied, reflects our tougher enforcement stance and our policy of imposing steep penalties to achieve credible deterrence."
The unauthorised activity took place between January 2006 and December 2007 at the bank's London-based wealth management arm. It came to light when an internal whistle-blower raised concerns.
"Upon further investigation, it was discovered that UBS employees had taken part in the trading of foreign exchange and precious metals using customer money without authorisation and allocated losses to customers' accounts," the FSA said.
An internal UBS inquiry estimated that as many as 50 unauthorised transactions a day were taking place at the peak.
The FSA said UBS failed to manage and control key risks and the level of risk, or to provide appropriate supervision.
The bank also failed to implement effective remedial measures despite "several warning signs" that suggested its systems and controls were inadequate, the FSA added.
UBS said it was to axe 8,700 jobs last April after making a £1.75 billion loss in the first trading quarter.
Cole, citing the "more challenging financial conditions" banks operated in, said the fine should serve as a warning that, where firms fell short, "the consequences will be severe".
UBS agreed to settle at an early stage of the investigation, therefore qualifying for a 20 per cent fine discount. Without that discount, the fine would have amounted to £10m, the FSA said. UBS said it had taken full remedial action after the disclosure.
FSA officials said Sants' speech at Bloomberg news agency on Monday would cover the way that the FSA had moved to a more "intrusive" style of supervision and the impact that this was having on financial firms.
