The FSA has fined UBS £29.7m for failing to prevent unauthorised trading which caused losses of $2.3bn.
The fine follows the conviction of UBS trader Kweku Adoboli, who was found guilty of two counts of fraud by abuse of position and sentenced last week to seven years in prison.
UBS became aware in September 2011 that unauthorised trading had been carried out between June and September on the exchange traded funds desk in the global synthetic equities department within the UBS London office.
The losses were incurred primarily on exchange traded index future positions. The underlying positions were disguised by the use of late bookings of real trades, booking fictitious trades to internal accounts and the use of fictitious deferred settlement trades.
The FSA says UBS failed to focus enough on the key risks associated with unauthorised trading within the GSE trading division in London.
The regulator says UBS’s computerised risk management system was not effective enough, that the operations division within UBS was focused on efficiency rather than risk control, and that there was inadequate front office supervision at the company.
The FSA also found the ETF desk breached risk limits without being disciplined, that UBS failed to investigate the reasons for the desk’s substantial increase in profitability, and that profit and loss suspensions totalling $1.6bn were requested by Adoboli during August 2011 which were accepted without challenge.
FSA director of enforcement and financial crime Tracey McDermott says: “UBS’s systems and controls were seriously defective.
“UBS failed to question the increasing revenue of the desk and failed to ensure 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.”
The fine against UBS was set at 15 per cent of the revenue of the GSE trading division.
UBS has spent £16m to date on an investigation into the unauthorised trading incident, with the investigation carried out by an independent firm.
The company has also taken disciplinary action against employees who were involved, including clawing back bonuses and withholding half of deferred compensation from relevant individuals totalling more than £34m.
UBS was fined £8m in November 2009 for systems and controls failings relating to international wealth management business carried out by the London branch with non-UK resident clients.