UBS fined £29.7m over rogue trader failings

Swiss banking giant UBS has been fined almost £30 million by the City watchdog for failings that allowed convicted rogue trader Kweku Adoboli to lose £1.4 billion.

Adoboli was sentenced to seven years in prison last week after he was convicted of two counts of fraud by abuse of position.

Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority (FSA), said: “UBS’s systems and controls were seriously defective.”

She went on: “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.

“We know from past experience that failures to manage risk properly can cause firms to fail and cause systemic harm.”

McDermott said UBS had agreed to settle with the FSA at an early stage, and qualified for a 30 per cent discount under the watchdog’s executive settlement procedures. Were it not for this discount, the fine would have been £42.4m.

UBS became aware on 14 September last year that unauthorised trading had taken place on its exchange traded funds desk in the global synthetic equities (GSE) trading division in London.

Adoboli disguised the underlying positions by the use of late bookings of real trades and the booking of fictitious trades.

The FSA, in an investigation with the Swiss Financial Market Supervisory Authority, uncovered several “particularly serious” failings which put wider market confidence at risk and allowed Adoboli to commit financial crime.

The computerised system operated by UBS to assist in risk management was not effective, the regulators said, while its trade capture and processing system had “significant deficiencies”.

Inadequate front office supervision was discovered including poorly executed and ineffective supervision arrangements within the GSE division.

Adoboli was at one point on the verge of causing losses of some £7.5bn, and the hole he eventually left was the largest trading loss ever in British banking history.

Prosecutors claimed Adoboli was a gambler who believed he had the “magic touch”.

He admitted the enormous losses but claimed he was pressured by staff to take risks, culminating in a catastrophe that wiped £2.8bn off the bank’s share value.