Olivia Harris/ReutersThe former UBS trader Kweku M. Adoboli.
LONDON — The British financial services regulator fined UBS on Monday for failing to prevent a $2.3 billion loss caused by a former trader.
The fine of £29.7 million, or $47.5 million, was one of the largest ever penalties by the Financial Services Authority, the British regulator.
UBS was found to have had serious weaknesses in the internal controls of its investment banking unit. The failings led to Kweku M. Adoboli, a former trader at the Swiss firm, to rack up a multibillion-dollar trading loss last year after he carried out a series of unauthorized trades.
Mr. Adoboli, 32, received a seven-year jail sentence last week for two counts of fraud in connection with the loss for abusing his position at the Swiss bank from 2008 to 2011. Mr. Adoboli was found not guilty on another four counts of false accounting.
The Financial Services Authority had been working with its Swiss counterpart in a year-long investigation into UBS’s trading loss.
British and Swiss regulators said on Monday that the Swiss bank had failed to manage the risks of its London-based traders. The lack of supervision from top managers allowed the unauthorized trading to continue for an extended period of time, according to statements from authorities.
The failures led Mr. Aboboli to commit financial crimes, the regulators added.
“UBS’s systems and controls were seriously defective,” Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority, said in a statement. “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 said on Monday that Mr. Adoboli’s activities would have been detected earlier if UBS had higher levels of risk management in place at its London operations.
The Swiss regulator, which does not have the power to levy fines, said that it was appointing an independent investigator to oversee improvements in UBS’s internal risk management systems.
Authorities also are considering whether UBS should have higher capital requirements to cover potential losses in the firm’s risky trading activities. The Swiss bank is also not allowed to make any acquisitions connected to its investment banking division.
The Swiss regulator already had imposed restrictions on the bank, including the need to receive approval from authorities for new areas of trading activity at UBS’s investment bank.
UBS said that it accepted the decisions from the British and Swiss regulators. The firm said it had taken disciplinary action against employees involved in the scandal, adding that the bank also had taken steps to reduce its exposure to complex trading.
“We are pleased that this chapter has been concluded,” UBS said in a statement.
Shares in the Swiss bank fell 0.7 percent in morning trading in Zurich.
UBS’ fine is the latest penalty by British authorities against some of the world’s largest financial institutions.
The Financial Services Authority fined the British bank Barclays £59.5 million this year in connection with the manipulation of the London interbank offered rate, or Libor. JPMorgan Chase was also penalized £33.3 million in 2010 for failing to protect British clients’ money from 2002 to 2009.
As UBS agree to settle with the British authorities, the Swiss bank received a 30 percent reduction on its overall fine. Without the discount, the firm would have been fined £42.4 million.
UBS also paid an £8 million fine to British regulators in 2009 after an employee in the firm’s London-based wealth management unit carried out unauthorized trades with clients’ money.
The Swiss bank is planning a major overhaul of its banking operations. Last month, the firm announced 10,000 layoffs in its investment banking unit, with almost half of the job losses expected to be in London.
The move is an effort to refocus UBS’s operations on its profitable wealth management business instead of risky trading activity.
Article source: http://dealbook.nytimes.com/2012/11/26/ubs-fined-47-5-million-in-rogue-trading-scandal/?partner=rss&emc=rss
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